Supreme Court Allows Suit Against Merck over Vioxx Disclosures, Adopts Relaxed Deadline Rule
The U.S. Supreme Court has allowed investors to sue Merck & Co. over disclosures about its pain drug Vioxx in a ruling that favors securities fraud plaintiffs.
The court ruled the securities fraud lawsuit was not barred by the statute of limitations, according to Reuters, the Associated Press, Bloomberg and SCOTUSblog.
The unanimous ruling (PDF) relaxes deadlines in shareholder fraud suits, according to Bloomberg.
The majority opinion by Justice Stephen G. Breyer said the limitations period in shareholder suits doesn’t begin to run until a plaintiff actually discovered or reasonably should have discovered facts constituting a securities law violation—including facts showing the defendant’s intent to deceive, manipulate or defraud.
This “scienter” requirement is not necessarily satisfied with facts suggesting the defendant made a materially false or misleading statement, Breyer said. He gave this example: An incorrect statement about future earnings does not automatically show whether the speaker lied or made an innocent error.
A contrary ruling would frustrate the purpose of the discovery rule, Breyer said. “So long as a defendant concealed for two years that he made a misstatement with an intent to deceive, the limitations period would expire before the plaintiff had actually ‘discover[ed]’ the fraud,” he wrote.
The plaintiffs had contended Merck failed to disclose the heart attack risks of Vioxx. Merck pulled the drug from the market in 2004, costing tens of billions of dollars in shareholder value, AP says.
The company contended the lawsuit was barred because investors did not sue at the first hint of Vioxx trouble in September 2001, according to AP. The plaintiffs had countered that the limitations period didn’t begin to run until a 2004 Wall Street Journal article disclosed internal company e-mails, according to the Bloomberg account.
The case is Merck v. Reynolds.
