The United States District Court for the District of New Jersey dismissed a securities fraud class action against Merck and certain of its officers and directors that asserted that defendants concealed information that Vioxx significantly increased the risk of heart attacks and made misleading statements about the drug’s safety. Asserting claims under, inter alia, the Exchange Act of 1934, plaintiffs alleged that as a result of defendants’ omission and misrepresentations they purchased Merck securities at artificially inflated prices. Defendants moved to dismiss on statute of limitations grounds, asserting that the Exchange Act claims were untimely because they were filed more than two years after plaintiffs discovered or should have discovered the facts constituting the alleged violation.
Under the Third Circuit’s “inquiry notice” standard to determine when a plaintiff’s Exchange Act claims accrue, the District Court ruled that the two-year clock begins to run when the plaintiff discovered, or in the exercise of reasonable diligence should have discovered, the general fraudulent scheme and its bearing on his investment. At such time, a plaintiff has an obligation to investigate the basis for his claims, and a failure to do so is at his peril. Applying the “inquiry notice” rule, the District Court found an abundance of “storm warnings” that triggered the accrual of plaintiffs’ claims more than two years before plaintiffs filed their lawsuit, including, among other things, the Food and Drug Administration’s release of a widely publicized warning letter (which the District Court characterized as containing “a direct and unequivocal accusation of fraud”), the filing of products liability and consumer fraud lawsuits that were predicated on the same alleged wrongdoing as plaintiffs’ claims, and a “torrent” of publicity about the Vioxx controversy. (In re Merck & Co, Inc., 2007 WL 1100820 (D.N.J.Apr. 12, 2007))