PHILADELPHIA (CN) – A group of class-action plaintiffs did not wait too long to sue Merck & Co. for securities fraud, the 3rd Circuit ruled.
The stockholders claim the drug manufacturer misrepresented the commercial viability of its Vioxx pain reliever, which was taken off the shelves in 2004 due to safety concerns.
“Claims under the Securities Act are subject to a … one-year limitation period from the time of discovery,” wrote Judge Sloviter, “but in no event may be filed later than three years after the public offering or the sale of the security.”
Therefore, if the shareholders knew the basis of their claims before Nov. 6, 2001, their suit would be barred by the statute of limitations.
Sloviter ruled that “sufficient information” of “culpable activity” is enough to trigger the statute of limitations, not a mere “smattering of evidence hinting at the possibility of some kind of fraud.”
A warning letter issued by the Food and Drug Administration about an increased risk of heart attack for Vioxx patients was not a significant storm warning, Sloviter wrote. The price of Merck stock dipped slightly before moving higher less than two weeks later.
Also, the district court found that a New York Times article constituted a storm warning, but Sloveiter noted that in it, a Merck spokesman stated that his company “found no evidence that Vioxx increased the risk of heart attacks.”
“The district court acted prematurely in finding as a matter of law that appellants were on inquiry notice of the alleged fraud,” Sloviter ruled.
The case was remanded to district court.
(This story corrects a previous version, which was posted Thursday.)