DECISION AND ORDER
Lеad plaintiff Roofers Local No. 14 9 Pension. Fund (“Lead Plaintiff’), individually and on behalf of all others similarly situated, filed a complaint (“Consolidated Complaint,” Dkt. No. 66) against sixteen defendants: Inovalon Holdings, Inc. (“Ino-valon”); six of Inovaloris officers and directors, Keith R. Dunleavy, Thomas R. Kloster, Denise K. Eletcher, Andre S. Hoffmann, Lee D. Roberts, and William J. Teuber Jr. (collectively, the “Individual Defendants”); and nine financial services companies that acted as underwriters for Inovaloris Initial Public Offering (“IPO”): Goldman Sachs & Co., Morgan Stanley & Co. LLC, Citigroup Global Markets Inc., Merrill. Lynсh, Pierce, Fenner & Smith, Incorporated, UBS Securities LLC, Piper Jaffray & Co., Robert W. Baird & Co. Incorporated, Wells Fargo Securities, LLC, and William Blair & Company, L.L.C. (collectively, the “Underwriter Defendants,” together with Inovalon and the Individual Defendants, “Defendants”).
On June 6, 2017, Defendants moved for reconsideration, óf the Court’s May 23, 2017 Order denying Defendants’ motion to dismiss (“Order,” see Dkt. No. 69), and, by separate letter sent on the same day, requested, interlocutory appeal if the Court denied Defendant’s motion for reconsideration. (Collectively* “Motion,” Dkt. Nos. 76, 77.) For the reasons below, Defendants’ Motion is DENIED.
I. BACKGROUND
Plaintiff.Yi Xiаng originally, filed a complaint in this action on June 24, 2016. (See Dkt. No. 1.) After this action was consolidated-with a related case, Patel et al. v. Inovalon Holdings, Inc. et al., No. 16-cv-5065, Roofers Local No. 149 Pension Fund was appointed Lead Plaintiff for the class, and class counsel was appointed. (See Dkt. Nos. 36, 63.) Lead Plaintiff then promptly filed the Consolidated Complaint. The Consolidated Complaint alleges that Ino-valon negligently included untrue statements of material fact and omitted material facts from the Registratiоn Statement
Shortly after Lead Plaintiff filed the Consolidated Complaint, Defendants sought leave to move to dismiss. (See Dkt. No. 68.) After the Court denied Defendants’ motion to dismiss (see Order), Defendants promptly filed this Motion, requesting reconsideration and, in the event that the Court held that the “inquiry notice” standard is inapplicable in this case, certification of interlocutory appeal on the narrow question of which standard, used to determine what constitutes “discovery” in the context of the Securities Act’s statute of limitations controls. (See generally Motion.)
Defendants argue in their Motion that reconsideration of the Court’s Order is warranted because: (1) the Court clearly erred in aрplying the “discovery rule” standard instead of the “inquiry notice” standard to determine when any potential claims should have been discovered by Lead Plaintiff under Section 11; (2) had the Court applied the “inquiry notice” standard, the Court would have found that the one year statute of limitations on Lead Plaintiffs claims had run, barring Lead Plaintiffs claims; and (3) the Court overlooked or misinterpreted controlling decisions or data that would alter the decision. (See Motion.)
Defendants separately request a certification of interlоcutory appeal, arguing that: (1) the question of which standard is used to determine the accrual date for Lead Plaintiffs claims is a controlling question of law in this dispute; (2) there are substantial grounds for difference of opinion regarding which standard should be used; and (3) immediate appellate review would materially advance the termination of the litigation. (See Motion.)
Lead Plaintiffs June 20, 2017 opposition to Defendants’ motion for reconsideration argues that: (1) Defendants fail to raise any arguments overlooked by thе Court in their motion as the “discovery rule” standard, or the Merck standard, is the controlling standard; (2) the Court properly applied that standard; and (3) even under the “inquiry notice” standard, Lead Plaintiffs claims would not be time barred. (Dkt. No. 79.)
Lead Plaintiff further opposes a certification of interlocutory appeal via a June 8, 2017 letter (collectively with the June 20, 2017 filing, “Opposition,” see Dkt. No. 78). Lead Plaintiff argues that: (1) which standard determines when the statute of limitations runs is not a controlling question of law, as the Complaint is not time barred under either standard; (2) a majority of courts in this Circuit follow the Merck standard; and (3) even if the Defendants won on appeal, it would not advance the termination of the case, as the Complaint would not be barred under the “inquiry notice” standard. (See id.)
A. LEGAL STANDARD
Reconsideration of a previous order by the court is an “extraordinary remedy to be employed sparingly in the interests of finality and conservation of scarce judicial resources.” In re Health Mgmt. Sys. Inc. Sec. Litig.,
A district court may certify for interlocutory appeal an order that “involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation .... ” 28 U.S.C. Section 1292(b). “The moving рarty has the burden of establishing all three elements.” Youngers v. Virtus Inv. Partners Inc.,
B. APPLICATION
1. Controlling Standard for When a Claim is “Discovered”
There is some confusion and dispute among courts within this District regarding which standard should be used to determine when the facts that give rise to a potential securities law claim is deemed “discovered” and, as such, when the statute of limitations begins to run under the Securities Act. While an “inquiry notice” standard was previously applied within this Circuit, the Supreme Court, in the context of an Exchange Act claim, expressly disclaimed the “inquiry notice” standard, holding:
If the term “inquiry notice” refers to the point where the facts would lead a reasonably diligent plaintiff to investigatefurther, that point is not necessarily the point,;at which the. plaintiff would already, have discovered facts showing scienter or other “facts constituting the violation.” But the statute says that the plaintiffs claim accrues only after the “discovery” of those latter facts. Nothing in the text suggests that the limitations period' can sometimes begin before “discovery” can take place. Merck points out that ., the court-created “discovery rule” exception to ordinary statutes of limitations is not generally available to plaintiffs who fail to-pursue their claims .with reasonable diligence. But we are. dealing here with a statute, not a court-created exception to a statute. Because the statute contains no indication that the limitations period should occur at some earlier moment before “discovery,” when a plaintiff would have begun investigating, we cannot accept-Merck's argument. ' :
Merck & Co. v. Reynolds,
The Supreme Court then adopted a" standard whereby the statute of limitations begins to run when “the plaintiff thereafter discovers or' a reasonably diligent plaintiff would have discovered ‘the facts constituting the violation.’ ” Id. at 653,
While the Second Circuit has established that Merck applies to Exchange Act claims, City of Pontiac Gen. Employees’ Ret. Sys. v. MBIA, Inc.,
Courts within this District are split on this question. A significant number of District Courts have extended - the Merck standard to apply to .Securities Act claims based on the similarity of the relevant language of the two statutes. See, e.g., Federal Hous. Fin. Agency v. Nomura Holding Am., Inc.,
As many of these decisions note, the Second Circuit has previously recognized that the statute of limitations provisions of both the Securities and the Exchange Acts are similar, as “the statutory periods for claims under either of these provisions begin to run when the.claim accrued or upon discovery of the facts constituting the alleged fraud.” Dodds v. Cigna Sec., Inc.,
There are, however, a number of courts in this District that have found that the language of the statute of limitations sections in the two Acts is sufficiently different that Merck should not be applied to Section 11 or 12 claims. See, e.g., Youngers v. Virtus Inv. Partners Inc.,
Further still, some Courts have noted that one standard appears to be the prevailing standard within the District, but have declined to rule definitively on this question, as which standard applied was not outcome-determinative in .the particular case. See, e.g., Rudman v. CHC Grp. LTD.,
The disagrеement over the underlying issue within the District is remarkable, as evidenced by the decisions of two different courts within months of each other, both declaring that a majority of courts in the district favored two opposite rules. Compare Pennsylvania Public Sch. Employees’ Ret. Sys. v. Bank of Am. Corp.,
Both Lead Plaintiff and Defendants argue that Koch v. Christie’s Int’l PLC,
Finally, Defendants cite dicta in a recent Supreme Court case, California Pub. Employees’ Ret. Sys. v. ANZ Sec., Inc., — U.S.—,
This view is confirmed by the two-sentence structure of Section 13. In addition to the 3-year time bar, Section 13 contains a 1-year statute of limitations. The limitations statute runs from the time when the plaintiff discovers (or should have discovered) the securities-law violation.
Id. at 2049-50. This language, however, does not differ from Merck, which also states that the statute of limitations runs from when the plaintiff discovered, or a reasonably diligent plaintiff would have discovered, the activity constituting the offense. The case, in fact, provides no guidance regarding Merck’s applicability to Securities Act violations.
Having reviewed the extensive case law addressing this question, the Court notes that the weight of authority leans toward the courts which have applied the Merck statute of limitations standard to Securities Act cases and, further, those courts have provided more substantive analysis of the issues in so holding. The Court is persuaded by the logic of applying the Merck standard, as the language of the two statutes clearly mirror each other. The Securities Act provides that actions cannot be brought “within one year after the discovery of the untrue statement or the omission, or after such discovery should have been made by the exerсise of reasonable diligence,” while the Exchange Act bars actions “two years after the discovery of the facts constituting the violation.” Compare 15 U.S.C. Section 77m, with 28 U.S.C. Section 1658. Both statutes are keyed to “discovery” of the facts constituting the violation. As Merck’s analysis speaks to how to decide what constitutes “discovery” of those facts, it makes sense to also apply the Merck standard in interpreting another securities statute that employs the same term also in reference to prescribing the applicable statute of limitations. Accordingly, the Court finds that the Merck standard should be extended to apply to Securities Act cases.
As Merck constitutes the proper standard, reconsideration of the Court’s Order is unwarranted. While the Order notes Younger’s holding that “inquiry notice” is the standard some courts in the District have adopted, in ultimately concluding that Lead Blaintiff s claim was not barred by the statute of limitations, the Order relies chiefly on the language in Bear Stearns that “a motion to dismiss will only be granted where uncontrоverted evidence irrefutably demonstrates [that the] plaintiff discovered or should have discovered facts sufficient to adequately plead a claim[.]” Yi Xiang v. Inovalon Holdings, Inc., No. 16-CV-4923,
In consequence, the only new information that Defendants provide that could alter the Court’s prior analysis relates to an alleged 12 percent decrease in Inovalon stock price that occurred before May 8, 2015. Defendants' allege that this decrease in the stock price alone was sufficient for Lead Plaintiff to properly plead damages and, as such, the statute of limitations ran from early May.
While the Court can generally take judicial notice of changes in stock prices without converting a motion to dismiss to a motion for summary judgment, see Ganino v. Citizens Utilities Co.,
Fourth, as the Inovalon stock price actually went up on May 8, 2015, after ¡the company’s disclosures, it is unclear how, at that point, any decrease in the stock price resulted directly from the misrepresentations regarding Inovalon’s tax rate. Finally, as the 12 percent decrease Defendants cite was a slow decrease over the course of a few months, not directly tied to any particular disclosures, this development appears to reflect a price decline before significant disclosures by Inovalon, which, as a general rule, cannot be charged to Defendants. See McMahan & Co. v. Wherehouse Entm’t, Inc.,
The Court therefore finds that" Defendants have failed to show that the Court committed clear error in applying the Merck standard, to identify a legal precedent overlooked by the Court in its analysis, or to provide new evidence not considered 'by the Court’s Order, On these grounds, reconsideration of the Court’s Order is unwarranted.
3.' Interlocutory Appeal
Defendants request that, if the Court finds that the Merck standard applies, which -it does, the question of whether Lead Plaintiffs'claims are time-barred by the statute of limitations be certified, for interlocutory appeal. Defendants argue that, if an “inquiry notice” standard were to apply,. Lead Plaintiffs claims would be time-barred and, consequently, an immediate appeal would advance the disposition of this case. Interlocutory appeal, however, would be appropriate only if. the application of the “inquiry notice” standard would alter the Court’s' conclusion that' Lead Plaintiffs claims are not time-barred.
The Court agrees with Lead Plaintiff that.which standard is applied matters only, in fringe cases. Indeed, as noted above, a few courts havе withheld ruling on which standard should control, as the claims would be barred or. allowed under either standard. See, e.g., Rudman,
While under an “inquiry nоtice” standard the question may be a closer one, the Court finds that Lead Plaintiffs claims would still not be time-barred. As noted in the Order, there were disclosures made prior to August- 2015 regarding the change in tax liability. Additionally, a decline in stock price is not. necessarily required to put a plaintiff on notice regarding a potential claim. See Freidus v. ING Groep N.V.,
However, the absence of stock price movement can indicate that the plaintiff is not yet on inquiry notice or indeed in a position to “discover” facts giving rise to the alleged violation regarding .any potential claim or misstatement. See Newman v. Warnaco Grp., Inc.,
Public Employees’ Retirement System of Mississippi v. Merrill Lynch & Co. Inc. is instructive. That case presented a similarly close question regarding whéther the statute of limitations had run, with competing evidence available to support arguments that the claims were and were not time-barred. See
In this case, if the “inquiry notice” standard were to apply, there is сompeting evidence regarding whether Lead Plaintiff should have been on notice regarding any potential claims, thus raising factual issues that would -be inappropriate to resolve at the motion to dismiss, stage. The Court is persuaded that, even under the “inquiry notice” standard, dismissal would be unwarranted. As Defendants’ motion to dismiss on statute of limitations grounds would be unsuccessful under either standard, interlocutory appeal of this issue would not materially advance the ultimate termination of this litigation. Thus, the Court finds that certification of this question for interlocutory appeal would be inappropriate.
III. ORDER
For the reasons stated above, it is hereby
ORDERED that the; motion (Dkt. Nos. 76, 77) of defendants Inovalon - Holdings, Inc. (“Inovalon”); Keith ' R, Dunleavy, Thomas R. Kloster, Denise K. Fletcher, Andre S. Hoffmann, Lee D. Roberts, and William J. Teuber Jr. (collectively, the “Individual Defendants”), Goldman Sachs & Co., Morgan Stanley & Co. LLC, Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith, Incorporated, U-BS Securities LLC, Piper Jaffray & Co., Robert W. Baird & Co. Incorporated, Wells Fargo Securities, LLC, and William Blair & Company, L.L.C. (collectively, the “Underwriter Defendants,” collectively with Inovalon and the Individual Defendants, “Defendants”) for reconsideration of the Court’s Order denying Defendants’ motion to dismiss (Dkt. No. 69) and for certification of interlocutory appeal is DENIED.
SO ORDERED.
Notes
. Additionally, the only Circuit Court to directly consider this question, the Third Circuit, held that Merck applies to the Securities Act. See Pension Trust Fund for Operating Engineers v. Mortg. Asset Securitization Transactions, Inc.,
. While Defendants also argue that stock price is unnecessary to plead damages, those arguments seem to re-hash points raised during the initial litigation of the motion to dismiss. (See Dkt. No, 68.) The- arguments regarding the stock price decrease before May 8, however, do not appear to have been raised during the motion to dismiss briefing.