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Supreme Court rules Vioxx fraud suit may proceed

The US Supreme Court [official website; JURIST news archive] on Tuesday allowed a suit to proceed against drug maker Merck & Co. [corporate website] over the safety record of its painkiller Vioxx [JURIST news archive]. The court ruled [opinion, PDF] unanimously in Merck & Co. v. Reynolds [Cornell LII backgrounder; JURIST report] that the statute of limitations in a securities fraud lawsuit begins to run once the plaintiff actually discovered or a reasonably diligent plaintiff would have discovered the violation - whichever comes first. Investors brought the class action suit against Merck in 2003, alleging that it had deliberately concealed information about Vioxx. The case was dismissed [JURIST report] by a federal judge in April 2007 after he determined that investors were on "inquiry notice" of the alleged fraud in September 2001 when the Food and Drug Administration (FDA) [official website] released a warning letter [text, PDF] about the painkiller. The US Court of Appeals for the Third Circuit reinstated the case [opinion, PDF; JURIST report] in September 2008, finding that the district judge had "acted prematurely in finding as a matter of law that [the investors] were on inquiry notice of the alleged fraud." In affirming the decision below, Justice Stephen Breyer wrote:

Construing this limitations statute for the first time, we hold that a cause of action accrues (1) when the plaintiff did in fact discover, or (2) when a reasonably diligent plaintiff would have discovered, "the facts constituting the violation" - whichever comes first. We also hold that the "facts constituting the violation" include the fact of scienter, "a mental state embracing intent to deceive, manipulate, or defraud,"
Justice John Paul Stevens filed a concurring opinion. Justice Antonin Scalia filed a separate concurring opinion, joined by Justice Clarence Thomas.

Under 28 USC § 1658(b) [text], a plaintiff has two years to file a claim alleging violation of the Securities Exchange Act of 1934 [text, PDF]. The first fraud complaint against the company was filed in November of 2003. Merck pulled Vioxx from the market in September 2004 after a study showed that it could double the risk of heart attack or stroke if taken for more than 18 months.

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