A divided Third Circuit Court of Appeals panel has reversed a district court ruling dismissing a shareholder’s lawsuit against individuals and a liquidating trustee involved in the dissolution of a biotechnology company and the liquidation of its assets. Schmidt v. Skolas, No. 13-3750 (3d Cir., decided October 17, 2014). The shareholder claimed that certain company assets had been sold far below actual value in tainted insider deals thus leading to the company’s ultimate dissolution. He alleged breach of fiduciary duties and waste of corporate assets. The district court found his claims untimely and determined that the shareholder had “not met his burden of demonstrating that the discovery rule should apply here” to toll the statute of limitations.

While the shareholder agreed that the claims were filed outside the limitations period, he argued that the district court erred in considering documents not appropriate at the motion-to-dismiss stage and by holding that the discovery rule did not apply. The Third Circuit agreed, finding that the district court had relied on updates from the liquidating trust and press releases from the acquiring companies that were attached to the defendants’ motions to dismiss. Because the documents were not integral to the complaint, the court ruled that the district court’s reliance on them was improper.

As to the applicability of the discovery rule, the Third Circuit determined that “nothing in Schmidt’s complaint clearly suggests that he did in fact have knowledge of the full scope of his injury prior to June 8, 2010 [the date on which the limitations period began to run]. Instead, the District Court dismissed Schmidt’s complaint for failing to affirmatively show that he exercised ‘due diligence’ with respect to discovering his injury. Requiring Schmidt to make a showing of reasonable diligence was premature. The District Court effectively required Schmidt to plead around an affirmative defense in his complaint, which is inconsistent with Rules 8 and 12(b)(6) and with this court’s decision in Barefoot Architect.”

A dissenting judge disagreed that the discovery rule saved the claims, stating, “A plaintiff, faced with a clear ‘miss’ of the statute of limitations, must come forth with some basis for invoking the discovery rule. . . . This is not a matter of consideration of matters outside the record; this is, instead, a matter of what a plaintiff who has failed to comply with the statute of limitations must do to satisfy the discovery rule.” According to this jurist, the plaintiff was “a very sophisticated investor, who kept himself aware of the value of these [contested] assets.” He never “came close” to pleading facts as to why he “could not have known, after the proxy statement revealed the dissolution plan in May 2009, that the sale prices—presumably available through some investigation—were inadequate.”