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3rd Circuit to Break Split on Investor-Suit Windows

PHILADELPHIA (CN) — Merck fought in the Third Circuit on Wednesday to block securities claims advanced under 40-year-old precedent that is now at the heart of a circuit split.

The dispute hinges recent upheaval to the 1974 U.S. Supreme Court decision in American Pipe v. Utah.

Institutional investors in particular say they have relied on the safety net of American Pipe to avoid bringing potentially duplicative litigation merely to avoid missing the window to sue.

Under American Pipe, investors could rely on their interests being represented by the prospective class that filed suit within the statute of limitations. If class certification was denied after the statute of limitations had run, the tolling doctrine allowed them to either intervene or bring their own claims.

A federal judge in New Jersey adopted this principle in advancing the case at hand against Merck.

North Sound Capital initiated the lawsuit in 2014, claiming that Merck delayed the results of a clinical trial performed on its anti-cholesterol drugs, Vytorin and Zetia, to inflate shares and reap hundreds of millions of dollars in undue profits.

At Wednesday's hearing, Paul Weiss attorney Dan Kramer urged the federal appeals court o reverse.

Weiss said the investor plaintiffs should either be in a class, or out of it, and should not be allowed to opt out after the result simply because they don't like it. All actions, whether individual or class-based, should be filed within the five-year statute of repose, he said.

Daniel Hume, an attorney for the investors with Kirby McInerney, meanwhile argued that the statute of limitations should not apply since his clients' claims are not new.

American Pipe helps avoid unnecessary litigation, not to protect defendants, the attorney argued.

The Third Circuit's ruling in this case is poised to break a circuit split.

In 2013, the Second Circuit blocked investors from suing IndyMac MBS for missing the three-year statute of repose in Section 13 of the Securities Act of 1933.

Though the 10th Circuit and Federal Circuit have applied class-action tolling, the Sixth Circuit aligned this past May with IndyMac.

The Sixth Circuit's ruling applied a five-year statute of limitiations to general antifraud claims under the Exchange Act.

The Supreme Court had actually been poised to consider IndyMac back in 2014, it subsequently dismissed the writ of certiorari as improvidently granted.

Merck's case has attracted much interest from institutional investors, 55 of which joined together in June for a supporting brief on behalf of the plaintiffs.

U.S. Circuit Judges Patty Shwartz and Jane Richards Roth presided over Wednesday's hearing, with U.S. Circuit Judge Morton Greenberg joining via teleconference.

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