Case Information
*2 BEFORE: SHWARTZ, GREENBERG, and ROTH, Circuit Judges (Filed: August 2, 2017)
______________
Daniel Hume (argued)
Ira M. Press
Meghan J. Summers
Karina Kosharskyy
Kirby McInerney
825 Third Ave. th Floor
New York, NY 10022
Attorneys for Appellees
Daniel J. Kramer (argued)
Theodore V. Wells, Jr.
Charles E. Davidow
Daniel J. Leffell
Daniel J. Juceam
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
William H. Trousdale
Brian M. English
Tomkins, McGuire, Wachenfeld & Barry
3 Becker Farm Road, Fourth Floor
Roseland, NJ 07065-1726
Attorneys for Appellants
Scott L. Nelson
Allison M. Zieve
Public Citizen Litigation Group
1600 20 th Street, N.W.
Washington, DC 20009
Max W. Berger
Salvatore J. Graziano
Bernstein Litowitz Berger & Grossman
1251 Avenue of the Americas, 44 th Floor
New York, NY 10020
Blair Nicholas
Bernstein Litowitz Berger & Grossman
12481 High Bluff Drive, Suite 300
San Diego, CA 92130
Ira D. Hammerman
Kevin M. Carroll
Securities Industry and Financial
Markets Association
1399 New York Avenue, N.W.
Washington, DC 20005
Jared M. Gerber
Lewis J. Liman
Clearly Gottlieb Stein & Hamilton
One Liberty Plaza
New York, NY 10006
Daniel P. Chiploch
Lieff Cabraser Heimann & Bernstein
250 Hudson Street, 8 th Floor
New York, NY 10013
Darren Robbins
Joseph D. Daley
Robbins Geller Rudman & Dowd
655 West Broadway
Suite 1900
San Diego, CA 92501
Tejinder Singh
Thomas C. Goldstein
Goldstein & Russell
7475 Wisconsin Avenue
Suite 850
Bethesda, MD 20814
Attorneys for amici curiae
______________
OPINION
______________
*5
GREENBERG, Circuit Judge.
I. INTRODUCTION
In American Pipe & Construction Co. v. Utah,
II.
JURISDICTION AND STANDARD OF REVIEW
The District Court had jurisdiction under Section 27 of the Exchange Act, 15
U.S.C. § 78aa, and 28 U.S.C. §§ 1331, 1337, and 1367. Merck and Merck as successor
to Schering filed a timely motion in the District Court seeking certifiсation for appeal of
the statute of repose questions that the District Court addressed in entering the August 26,
2015 order. On January 7, 2016, that Court granted the motion and certified its August
26, 2015 order for interlocutory appeal pursuant to 28 U.S.C. § 1292(b). After the
District Court granted their motion, appellants filed a timеly petition in this Court for
leave to appeal, which we granted on February 11, 2016.
[2]
Consequently, we have
jurisdiction pursuant to 28 U.S.C. § 1292(b). See, e.g., Weitzner v. Sanofi Pasteur, Inc.,
III. BACKGROUND [3]
A. The ENHANCE Trial
*7 In 2002, Merck and Schering entered into a joint venture for the purpose of combining their cholesterol treating drugs, respectively Zocor and Zetia, to create a new pharmaceutical product called “Vytorin.” In furtherance of this venture, Merck and Schering designed a clinical trial known as ENHANCE to demonstrate the benefits of Vytorin. In particular, Merck and Schering expected that the ENHANCE trial would establish that Vytorin simultaneously could lower LDL cholesterol levels and reduce the intima-media thickness of the carotid arterial wall. (JA 85, ¶ 41).
The ENHANCE trial ran from August 2002 to August 2006 but was unsuccessful. According to appellees, notwithstanding the hurdles attributable to ENHANCE’s experimental design, appellants allegedly misrepresented Vytorin’s prospects for clinical efficacy. Appellees claim that appellants made 17 misrepresentations concerning Vytorin, the last by Schering on November 19, 2007, and by Merck on January 30, 2008. They also allege that an individual defendant made sales of Schering stock based on insider knowledge of the results of ENHANCE, the last insider transaction having been on May 1, 2007.
The final results of the ENHANCE trial became public between January and March 2008 and the ENHANCE data indicated that Vytorin did not produce any added benefit when compared to Zocor alone. Indeed, according to appellees, researchers characterized Vytorin’s active ingrеdient as an “expensive placebo.” (JA 132, ¶ 142). *8 Appellees assert that in the period immediately following the release of these results, Schering’s “common stock price fell more than 52%, wiping out more than $23.63 billion in market capitalization, and the . . . preferred stock priсe similarly fell more than 40% . . . wiping out $1.039 billion in market capitalization.” (JA 216, ¶ 320) (emphasis in the original).
B. The Class Actions
After the results of ENHANCE became public in 2008, representative plaintiffs filed two putative class actions related to the test’s failure, one against Merck and one against Schering. See In re Sсhering-Plough Corp./ENHANCE Sec. Litig., No. 2:08-cv-
00397 (DMC) (JAD),
C. Appellees Opt-Out of the Class
Appellees North Sound Capital LLC and GIC Private Limited, both institutional investors, who were within the classеs in the underlying actions, timely opted-out of the classes on March 1, 2013. Then appellees initiated four district court actions against *9 appellants on November 14, 2013, and January 14, 2014. [5] In their essentially identical complaints, appellees alleged that appellants violated §§ 10(b), 20(a), and 20A of the Exchange Act, and engаged in common law fraud actionable under New Jersey law. Specifically, appellees allege that they, or their investment managers, relied on appellants’ misrepresentations when they purchased Schering securities during the ENHANCE trial and that “[a]s a direct and proximate result of [appellants’] wrongful conduct, [appellees] suffered damages in connection with their respective purchases and sales of [Schering’s] securities during the [r]elevant [p]eriod.” (JA 225, ¶ 346). Appellees also allege that an individual defendant, other than Merck and Merck as successor to Schering, engaged in a series of insider sales of Schering stock. (JA 410-11, ¶¶ 351-52). As we already have stated, the last alleged insider trade was executed on May 1, 2007, and the final alleged misstatement was made on January 30, 2008, more than five years before appеllees initiated their individual actions. (JA 410-11, ¶¶ 351-52; JA 744-45, ¶¶ 317-18).
D. Appellants’ Motions to Dismiss and Petitions for Interlocutory Review
On November 17, 2014, appellants moved under Fed. R. Civ. P. 12(b)(6) to dismiss all four of appellees’ post-opt-out-cases. [6] In support of their motions, appellants *10 asserted that the five-year period for bringing actions that the statutes of repose set forth in 28 U.S.C. § 1658(b)(2) for claims under §§ 10(b) and 20(a), and 15 U.S.C. § 78t- 1(b)(4) for claims under § 20A, barred appellees’ Exchange Act actions because appellees brought their actions after the expiration of the five-year period. Appellants argued that American Pipe did not sаve appellees’ cases because American Pipe applied to “equitable” tolling of statutes of limitation and was not a precedent for extending the time for initiating actions barred by statutes of repose. Appellants also argued that even if American Pipe tolling applied a form of “legal,” as distinguished from “equitable” tolling, the Rules Enabling Act (“REA”), 28 U.S.C. § 2072(b), precluded the application of Fed. R. Civ. P. 23 on which the District Court relied in denying appellants’ motions to dismiss to extend the time for commencing actions under the Exchange Act statutes of reрose. (JA 9).
Appellees, in opposing dismissal of their actions in the District Court, asserted that
the Exchange Act time limitations are statutes of limitations rather than statutes of repose
of Miss. v. IndyMac MBS, Inc.,
and thus the limitations periods in the statutes could be equitably tolled. Appellees further contended that, even if the Exchange Act time limitations are statutes of repose, thеre could be tolling under American Pipe in these cases because the tolling in American Pipe had a “legal” foundation rooted in an interpretation of Fed. R. Civ. P. 23. Accordingly, appellees contended that there was a statutory basis for the tolling. Finally, appellees argued that the REA did not preclude extending American Pipe tolling to statutes of repose.
On August 26, 2015, the District Court denied appellants’ motions to dismiss. The Court first concluded that the time limitations in 28 U.S.C. § 1658(b)(2) and 15 U.S.C. § 78t-1(b)(4) are statutes of repose and that, in the absence of tolling, the time for bringing appellеes’ Exchange Act actions expired before appellees opted-out of the class actions and subsequently initiated their individual actions. The Court, however, determined that it could apply American Pipe tolling to the Exchange Act repose periods as it аccepted appellees’ contention that American Pipe tolling has a “legal” foundation. It reached this conclusion on the bases of its interpretation of Rule 23 and its conclusion that American Pipe was applicable to statutes of repose. Thе Court then addressed the impact of the REA and reasoned that American Pipe tolling is purely procedural and therefore American Pipe could be applicable as tolling under that case had only an incidental impact on the parties’ substantive rights. Accordingly, thе Court applied American Pipe tolling to appellees’ individual actions brought after they opted-out of the class actions following the class actions’ certification. The Court therefore held that appellees’ *12 Exchange Act claims were timely and it deniеd appellants’ Rule 12(b)(6) motions to dismiss.
As we set forth above, appellants filed a motion in the District Court seeking an order certifying the statute of repose questions to this Court for appeal pursuant to 28 U.S.C. § 1292(b). The District Court granted appellants’ motion on January 7, 2016, and certified the fоllowing two questions for interlocutory review:
1. Whether the tolling rule set forth in American Pipe & Constr. Co. v. Utah,414 U.S. 538 (1974) is ‘legal’ or ‘equitable’ in nature; 2. Whether interpreting American Pipe & Constr. Co.
v. Utah,414 U.S. 538 (1974) tolling to extend the five- year statutes of repose under the Securities Exchange Act of 1934 would abridge [appellant]s’ substantive rights, enlarge [appellee]s’ substantive rights, or otherwise modify any substantive right within the meaning of the Rules Enabling Act, 28 U.S.C. § 2072(b)[.]
(JA 34). After the District Court entered the above order, appellants petitioned this Court for leave to file an interlocutory appeal and we granted their petition pursuant to 28 U.S.C. § 1292(b) on February 11, 2016. In our order we accepted the District Court’s framing of the questions for the appeal.
IV. DISCUSSION
When this case was before the District Court the outcome was not obvious. But that was before the Supreme Court decided ANZ Securities. After the Court decided that *13 case we directed the parties to inform us by letter with respect to their positions concerning the impact of that case on this case. Appellees have stated that ANZ made clear that American Pipe recognized a form of “equitable tolling that does not apply to the federal securities laws’ statutes of repose. Because this is the precise question at issue in [these consolidated appeals], we believe that the Supreme Court’s decision is dispositive of the issues raised in Defendants’ appeals.” Letter of Daniel Hume of Kirby McInerney LLP dated July 6, 2017. Not surprisingly, appellants have filed a letter taking the same position.
V. CONCLUSION
For the foregoing reasons, we will reverse the District Court’s order of August 26, 2015, denying appellants’ motions to dismiss appellees’ Exchange Act claims, and will remand the cases to that Court for it to dismiss the Exchange Act claims as time-barred, and for further proceedings on the remaining issues.
Notes
[1] This disposition is not an opinion of the full court and pursuant to I.O.P. 5.7 does not constitute binding precedent.
[2] There are additional appellants but it is adequate for us to refer only to Merck and Merck as successor to Schering as the appellants. Of course, our opinion reversing applies to all appellants.
[3] The District Court primarily relied on the allegations in North Sound Capital’s complaint filed on November 14, 2013. We, too, will rely on North Sound’s allegations in this opinion. In any event, the individual complаints filed in the actions now on appeal are “extremely similar.” (JA 6 n.2).
[4] Merck and Schering completed a merger in November 2009 in which Schering became a part of Merck. (JA 73, ¶ 21). Thus, Merck and Merck as successor to Schering Plough are appellants on this appeal.
[5] Two of the actions were against Merck in its own capacity and two were against Merck as successor to Schering. Appellants characterize the complaints in these actions as copy cats of the class actions.
[6] The District Court initially stayed the four actions after the Supreme Court granted
certiorari in Police & Fire Retirement System of the City of Detroit v. IndyMac MBS,
Inc.,
[8] Appellants do not contend that even if tolling applied, appellees’ actions would be untimely.