16-1364; 16-1365; 16-1366; 16-1367 - blogs.reuters.comblogs.reuters.com/alison-frankel/files/2016/05/northsoundvmerck...16-1364; 16-1365; 16-1366; 16-1367 United States Court Of Appeals

16-1364; 16-1365; 16-1366; 16-1367

United States Court Of Appeals

for the

Third Circuit

NORTH SOUND CAPITAL LLC; NORTH SOUND LEGACY INTERNATIONAL;

NORTH SOUND LEGACY INSTITUTIONAL; UNITED FOOD COMMERCIAL WORKERS

LOCAL 1500 PENSION FUND,

Plaintiffs-Appellees,

- v. -

MERCK & CO INC; MERCK SCHERING PLOUGH PHARMACEUTICALS;

MSP DISTRIBUTION SERVICES C LLC; MSP SINGAPORE CO LLC;

RICHARD T. CLARK; DEEPAK KHANNA,

Defendants-Appellants.

(See Inside Cover For Continuation of Consolidated Captions)

APPEAL PURSUANT TO 28 U.S.C. § 1292(b) FROM AN ORDER

OF THE UNITED STATES DISTRICT COURT FOR THE

DISTRICT OF NEW JERSEY, ENTERED ON AUGUST 26, 2015

CIVIL ACTION NOS. 3:14-00242 (FLW); 3:14-00241 (FLW);

3:13-07241 (FLW); 3:13-07240 (FLW)

BRIEF OF DEFENDANTS-APPELLANTS

PAUL, WEISS, RIFKIND,

WHARTON & GARRISON LLP

Daniel J. Kramer

Theodore V. Wells, Jr.

Charles E. Davidow

Daniel J. Leffell

Daniel J. Juceam

1285 Avenue of the Americas

New York, New York 10019-6064

(212) 373-3000

TOMPKINS, MCGUIRE,

WACHENFELD & BARRY LLP

William H. Trousdale

Brian M. English

3 Becker Farm Road, Fourth Floor

Roseland, New Jersey 07068-1726

(973) 622-3000

Attorneys for Defendants-Appellants Merck & Co., Inc.; Merck/Schering-Plough

Pharmaceuticals; MSP Distribution Services (C) LLC; MSP Singapore Company LLC;

Richard T. Clark; Deepak Khanna; Fred Hassan; and Carrie S. Cox

Case: 16-1367 Document: 003112256060 Page: 1 Date Filed: 04/06/2016

(Consolidated Captions Continued From Inside Front Cover)

GIC PRIVATE LIMITED,

Plaintiff-Appellee,

- v. – MERCK & CO INC; MERCK SCHERING PLOUGH PHARMACEUTICALS;

MSP DISTRIBUTION SERVICES (C), LLC; MSP SINGAPORE COMPANY, LLC; RICHARD T. CLARK; DEEPAK KHANNA,


GIC PRIVATE LIMITED,

Plaintiff-Appellee,

- v. –

MERCK & CO., INC f/k/a SCHERING-PLOUGH CORPORATION;

MERCK SCHERING PLOUGH PHARMACEUTICALS; MSP DISTRIBUTION

SERVICES (C) LLC; MSP SINGAPORE COMPANY, LLC; FRED HASSAN; CARRIE COX,


NORTH SOUND CAPITAL, LLC; NORTH SOUND LEGACY INTERNATIONAL; NORTH

SOULD LEGACY INTERNATIONAL; NORTH SOUND LEGACY INSTITUTIONAL;

UNITED FOOD COMMERCIAL WORKERS LOCAL 1500 PENSION FUND; COLONIAL

FIRST STATE INVESTMENT, LTD.; CFSIL-CFS WHOLESALE INDEXED GLOBAL

SHARE FUND; COMMONWEALTH BANK OFFICERS SUPERANNUATION

CORPORATION AS TRUSTEE FUND OFFICERS SUPERANNUATION FUND WGSS04;

CFSIL-COMMONWEALTH GLOBAL SHARES FUND 4; COMMONWEALTH BANK

OFFICERS SUPERANNUATION CORPORATION AS TRUSTEE FUND OFFICERS

SUPERANNUATION FUND WGSS02; COMMONWEALTH BANK OFFICERS

SUPERANNUATION CORPORATION AS TRUSTEE FUND OFFICERS

SUPERANNUATION FUND WTRA02; CFSIL-COMMONWEALTH SPECIALIST FUND 13;

CFSIL WHOLESALE GEARED GLOBAL SHARED FUND; CFSIL ATF CMLA

INTERNATIONAL SHARE FUND; CFSIL-COMMONWEALTH GLOBAL SHARES FUND

6; CFSIL-COMMONWEALTH GLOBAL SHARES FUND 2; CFSIL-CFS WHOLESALE

ACADIAN GLOBAL EQUITY FUND; CFSIL-CFS WHOLESALE GLOBAL HEALTH &

BIOTECHNOLOGY FUND; CFSIL-CFS WHOLESALE GLOBAL SHARE FUND,

Plaintiffs-Appellees,

- v. -

MERCK & CO, INC., f/k/a SCHERING-PLOUGH CORPORATION;

MERCK SCHERING PLOUGH PHARMACEUTICALS; MSP DISTRIBUTION

SERVICES (C) LLC; MSP SINGAPORE COMPANY, LLC; FRED HASSAN; CARRIE S.

COX,



i

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES ................................................................................... iii

CORPORATE DISCLOSURE STATEMENT ........................................................ ix

PRELIMINARY STATEMENT ............................................................................... 1

JURISDICTIONAL STATEMENT .......................................................................... 5

STATEMENT OF QUESTIONS PRESENTED ....................................................... 6

STATEMENT OF THE CASE .................................................................................. 7

SUMMARY OF ARGUMENT ............................................................................... 12

STANDARD OF REVIEW ..................................................................................... 14

ARGUMENT ........................................................................................................... 15

I. THE FEDERAL SECURITIES CLAIMS ARE TIME-BARRED BY

FIVE-YEAR STATUTES OF REPOSE ....................................................... 15

A. The Applicable Five-Year Time Bars Are Statutes Of Repose .......... 15

B. Plaintiffs Filed These Actions After The Deadline Mandated By

The Five-Year Statutes Of Repose ...................................................... 17

C. Statutes Of Repose Are Fundamentally Different From Statutes

Of Limitation ....................................................................................... 19

II. THE FIVE-YEAR STATUTES OF REPOSE ARE NOT SUBJECT

TO TOLLING UNDER AMERICAN PIPE .................................................. 21

A. American Pipe Tolling Does Not Apply On Its Face ......................... 22

B. American Pipe Tolling Is “Equitable” In Nature ................................ 25

C. The District Court Erred In Ruling That American Pipe Tolling

Is “Legal” In Nature ............................................................................ 30


Page

ii

III. WHETHER LEGAL OR EQUITABLE IN NATURE, AMERICAN

PIPE TOLLING CANNOT BE APPLIED TO A STATUTE OF

REPOSE UNDER THE RULES ENABLING ACT .................................... 32

A. Applying American Pipe Tolling To A Statute Of Repose

Would Impermissibly Modify Substantive Rights .............................. 32

B. The District Court Erred In Ruling That American Pipe Tolling

Of Statutes Of Repose Would Not Modify Substantive Rights .......... 35

C. American Pipe Tolling Does Not Re-Define When An

Individual Action Is Filed In Federal Court ........................................ 38

IV. POLICY ARGUMENTS DO NOT OVERCOME THE

DISPOSITIVE EFFECT OF THE STATUTE OF REPOSE ........................ 41

A. Applying The Statute Of Repose Is Not Inefficient ............................ 41

B. Applying The Statute Of Repose Is Not Unfair .................................. 45

CONCLUSION ........................................................................................................ 48


iii

TABLE OF AUTHORITIES

Page(s)

CASES

Albillo-De Leon v. Gonzales,

410 F.3d 1090 (9th Cir. 2005) ............................................................................ 20

American Pipe & Constr. Co. v. Utah,

414 U.S. 538 (1974) .....................................................................................passim

Angles v. Dollar Tree Stores, Inc.,

494 F. App’x. 326 (4th Cir. 2012) ...................................................................... 26

Ashcroft v. Iqbal,

556 U.S. 662 (2009) ............................................................................................ 14

Augustis v. United States,

732 F.3d 749 (7th Cir. 2013) .............................................................................. 20

In re Bear Stearns Cos., Inc. Sec., Derivative, & ERISA Litig.,

995 F. Supp. 2d 291 (S.D.N.Y. 2014) ................................................................ 24

Bradford-White Corp. v. Ernst & Whinney,

872 F.2d 1153 (3d Cir. 1989) ............................................................................. 19

Bridges v. Dep’t of Md. State Police,

441 F.3d 197 (4th Cir. 2006) .............................................................................. 29

Burlington N. & Santa Fe Ry. Co., Inc. v. Poole Chem. Co., Inc.,

419 F.3d 355 (5th Cir. 2005) .............................................................................. 34

Casey v. Merck & Co., Inc.,

653 F.3d 95 (2d Cir. 2011) ................................................................................. 29

Chardon v. Fumero Soto,

462 U.S. 650 (1983) ............................................................................................ 27

Chesapeake Appalachia, LLC v. Scout Petroleum, LLC,

809 F.3d 746 (3d Cir. 2016) ................................................................................. 6

Cohen v. Telsey,

No. 09-cv-2033, 2009 WL 3747059 (D.N.J. Nov. 2, 2009) ............................... 24


Page(s)

iv

Credit Suisse Sec. (USA) LLC v. Simmonds,

132 S. Ct. 1414 (2012) ........................................................................................ 26

Crown, Cork & Seal Co., Inc. v. Parker,

462 U.S. 345 (1983) ...................................................................................... 40, 41

CTS Corp. v. Waldburger,

134 S. Ct. 2175 (2014) .................................................................................passim

Del Sontro v. Cendant Corp.,

223 F. Supp. 2d 563 (D.N.J. 2002) ..................................................................... 25

In re Exxon Mobil Corp. Sec. Litig.,

500 F.3d 189 (3d Cir. 2007) ........................................................................passim

Fed. Hous. Fin. Agency v. UBS Ams. Inc.,

712 F.3d 136 (2d Cir. 2013) ............................................................................... 25

First United Methodist Church of Hyattsville v. U.S. Gypsum Co.,

882 F.2d 862 (4th Cir. 1989) .............................................................................. 23

Footbridge Ltd. Trust v. Countrywide Fin. Corp.,

770 F. Supp. 2d 618 (S.D.N.Y. 2011) ................................................................ 28

Greyhound Corp. v. Mt. Hood Stages, Inc.,

437 U.S. 322 (1978) ............................................................................................ 28

Hinkle by Hinkle v. Henderson,

85 F.3d 298 (7th Cir. 1996) ................................................................................ 20

Holland v. Florida,

560 U.S. 631 (2010) ...................................................................................... 23, 26

Mississippi ex rel. Hood v. AU Optronics Corp.,

134 S. Ct. 736 (2014) .......................................................................................... 40

Instituto De Prevision Militar v. Merrill Lynch,

546 F.3d 1340 (11th Cir. 2008) .......................................................................... 42

Irwin v. Dep’t of Veterans Affairs,

498 U.S. 89 (1990) .............................................................................................. 28

Jesinoski v. Countrywide Home Loans, Inc.,

135 S. Ct. 790 (2015) .......................................................................................... 35


Page(s)

v

John Hancock Life Ins. Co. (USA) v. JP Morgan Chase & Co.,

938 F. Supp. 2d 440 (S.D.N.Y. 2013) .......................................................... 26, 29

Joosten v. United States,

No. 95-cv-2491, 1996 WL 495547 (D.N.J. June 5, 1996) ................................. 30

Joseph v. Wiles,

223 F.3d 1155 (10th Cir. 2000) .................................................................... 30, 31

Kincade v. Gen. Tire & Rubber Co.,

635 F.2d 501 (5th Cir. 1981) .............................................................................. 45

Korwek v. Hunt,

827 F.2d 874 (2d Cir. 1987) ............................................................................... 30

Kuwait Inv. Office v. Am. Int’l Grp., Inc.,

No. 11-cv-8403, 2015 WL 5294784 (S.D.N.Y. Sept. 10, 2015) ........................ 43

Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson,

501 U.S. 350 (1991) ............................................................................ 3, 13, 17, 25

In re Lehman Bros. Sec. & ERISA Litig.,

800 F. Supp. 2d 477 (S.D.N.Y. 2011) ................................................................ 26

Lieberman v. Cambridge Partners, L.L.C.,

432 F.3d 482 (3d Cir. 2005) ............................................................... 3, 21, 33, 40

Lozano v. Montoya Alvarez,

134 S. Ct. 1224 (2014) ........................................................................................ 23

Luzadder v. Despatch Oven Co.,

834 F.2d 355 (3d Cir. 1987) ............................................................................... 21

Margolies v. Deason,

464 F.3d 547 (5th Cir. 2006) .............................................................................. 19

Martinez v. Attorney General of U.S.,

693 F.3d 408 (3d Cir. 2012) ............................................................................... 15

Mayfield v. Barr,

985 F.2d 1090 (D.C. Cir. 1993) .......................................................................... 45

McCann v. Hy-Vee, Inc.,

663 F.3d 926 (7th Cir. 2011) .............................................................................. 18


Page(s)

vi

McKowan Lowe & Co., Ltd. v. Jasmine, Ltd.,

295 F.3d 380 (3d Cir. 2002) ............................................................................... 36

Merck & Co., Inc. v. Reynolds,

559 U.S. 633 (2010) .................................................................................. 1, 17, 20

Ma v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,

597 F.3d 84 (2d Cir. 2010) ................................................................................. 19

Norris v. Wirtz,

818 F.2d 1329 (7th Cir. 1987), overruled on other grounds,

Short v. Belleville Shoe Mfg. Co., 908 F.2d 1385 (7th Cir. 1990) ..................... 37

P. Stolz Family P’ship L.P. v. Daum,

355 F.3d 92 (2d Cir. 2004) ........................................................................... 26, 37

In re Petrobras Sec. Litig.,

No. 15-cv-00093, ECF No. 27 (S.D.N.Y. Nov. 2, 2015) ................................... 43

Pinter v. Dahl,

486 U.S. 622 (1988) ...................................................................................... 36, 47

Police & Fire Ret. Sys. of Detroit v. IndyMac MBS, Inc.,

721 F.3d 95 (2d Cir. 2013), cert. granted, No. 13-640, 134 S. Ct.

1515 (Mar. 10, 2014), cert. dismissed as improvidently granted,

135 S. Ct. 42 (Sept. 29, 2014) ......................................................................passim

Premier Elec. Constr. Co. v. Nat’l. Elec. Contractors Assoc., Inc.,

814 F.2d 358 (7th Cir. 1987) .............................................................................. 45

Raie v. Cheminova, Inc.,

336 F.3d 1278 (11th Cir. 2003) .......................................................................... 29

Ranke v. Sanofi-Synthelabo Inc.,

436 F.3d 197 (3d Cir. 2006) ............................................................................... 14

In re Shenango Grp. Inc.,

501 F.3d 338 (3d Cir. 2007) ............................................................................... 15

Simon v. FIA Card Servs., N.A.,

732 F.3d 259 (3d Cir. 2013) ............................................................................... 14

Smith v. Bayer Corp.,

131 S. Ct. 2368 (2011) ........................................................................................ 28


Page(s)

vii

Sperling v. Hoffmann-LaRoche, Inc.,

24 F.3d 463 (3d Cir. 1994) ................................................................................. 36

State Farm Mut. Auto. Ins. Co. v. Boellstorff,

540 F.3d 1223 (10th Cir. 2008) .......................................................................... 42

Vaught v. Showa Denko K.K.,

107 F.3d 1137 (5th Cir. 1997) ............................................................................ 28

Veltri v. Bldg. Serv. 32B-J Pension Fund,

393 F.3d 318 (2d Cir. 2004) ............................................................................... 29

Wade v. Danek Med., Inc.,

182 F.3d 281 (4th Cir. 1999) .............................................................................. 29

Wal-Mart Stores, Inc. v. Dukes,

564 U.S. 338, 131 S. Ct. 2541 (2011)................................................................. 32

Williams v. Wells Fargo Home Mortg., Inc.,

410 F. App’x 495 (3d Cir. 2011) ........................................................................ 25

Young v. United States,

535 U.S. 43 (2002) ........................................................................................ 23, 28

Youngblood v. Dalzell,

925 F.2d 954 (6th Cir. 1991) .............................................................................. 29

STATUTES

15 U.S.C. § 15b ........................................................................................................ 22

15 U.S.C. § 77m ....................................................................................................... 16

15 U.S.C. § 78aa ........................................................................................................ 5

15 U.S.C. § 78j(b) .............................................................................................passim

15 U.S.C. § 78t ..................................................................................................... 5, 15

15 U.S.C. § 78t-1 ..............................................................................................passim

28 U.S.C. § 1292(b) ......................................................................................... 1, 6, 12

28 U.S.C. § 1331 ........................................................................................................ 5


Page(s)

viii

28 U.S.C. § 1337 ........................................................................................................ 5

28 U.S.C. § 1367 ........................................................................................................ 5

28 U.S.C. § 1658(b)(1)............................................................................................. 16

28 U.S.C. § 1658(b)(2)......................................................................................passim

28 U.S.C. § 2072(b) ..........................................................................................passim

28 U.S.C. § 2244(d)(2)............................................................................................. 26

OTHER AUTHORITIES

4 Charles A. Wright & Arthur R. Miller,

FEDERAL PRACTICE AND PROCEDURE § 1056 (4th ed. 2015) ........................ 18, 24

Federal Rule of Appellate Procedure 26.1 ................................................................ ix

Federal Rule of Civil Procedure 3 ..................................................................... 39, 40

Federal Rule of Civil Procedure 12(b)(6) ................................................................ 14

Federal Rule of Civil Procedure 23 ..................................................................passim

MANUAL FOR COMPLEX LITIGATION (FOURTH) § 31.6 (2004) ................................. 42

Mark W. Friedman, Constrained Individualism In Group Litigation:

Requiring Class Members To Make A Good Cause Showing Before

Opting Out Of A Federal Class Action, 100 YALE L.J. 745 (1990) ................... 45

Note, Statutes of Limitations and Opting Out of Class Actions,

81 MICH. L. REV. 399 (1982) .............................................................................. 44

Wendy Gerwick Couture, Class-Action Tolling, Federal Common

Law, and Securities Statutes of Repose: A Recommendation,

46 LOY. U. CHI. L.J. 525 (2015) ......................................................................... 46


ix

CORPORATE DISCLOSURE STATEMENT

(Federal Rule of Appellate Procedure 26.1)

Defendant-Appellant Merck & Co., Inc. is a publicly-traded

corporation that has no parent corporation. No publicly-held corporation owns

10% or more of its stock. Effective November 3, 2009, Schering-Plough

Corporation changed its name to Merck & Co., Inc.

Defendant-Appellant MSP Distribution Services (C) LLC merged

with and into Schering Corporation on May 1, 2012. Schering Corporation was

renamed Merck Sharp & Dohme Corp., which is a direct, wholly-owned subsidiary

of Merck & Co., Inc.

Defendant-Appellant MSP Singapore Company LLC is a wholly-

owned subsidiary of MSD International GmbH, which is an indirect wholly-owned

subsidiary of Merck & Co., Inc.


1

Defendants-Appellants respectfully submit this brief in support of

their appeal from an Order of the U.S. District Court for the District of New Jersey

(Wolfson, J.), denying their motions to dismiss the Complaints. (JA 0003-4.) On

February 11, 2016, this Court granted Defendants-Appellants’ petition for

interlocutory review of the Order under 28 U.S.C. § 1292(b). (JA 0001-2.)

PRELIMINARY STATEMENT

The District Court’s Order should be reversed because the federal

securities claims asserted in these cases are time-barred as a matter of law.

In November 2013 and January 2014, institutional investors who had

“opted out” from two settled securities class actions filed complaints against

Defendants that were mirror images of the class complaints brought in 2008.

Plaintiffs assert claims under the Securities Exchange Act of 1934 (the “Exchange

Act”) for alleged misstatements that ended no later than January 30, 2008, and for

alleged insider trading that occurred no later than May 1, 2007. Those claims are

each subject to a statute of repose, which sets forth an “unqualified bar” on

litigation after five years. See Merck & Co., Inc. v. Reynolds, 559 U.S. 633, 650

(2010). It is undisputed that Plaintiffs in each of these cases filed their individual

Complaints more than five years after the last alleged securities violation.

Nonetheless, the District Court denied Defendants’ motions to dismiss the

Complaints as time-barred, reasoning that the statutes of repose had been “tolled”


2

by the class actions under American Pipe & Construction Co. v. Utah, 414 U.S.

538 (1974). (JA 0005-0030.)

The District Court erred for three principal reasons:

First, the American Pipe tolling doctrine is inapplicable on its face.

American Pipe allowed courts to toll certain statutes of limitation for members of a

putative class who later seek to assert the same claims at issue in the class action.

American Pipe invoked a “judicial power to toll statutes of limitation” on the

ground that tolling was: (1) consistent with the purpose of Federal Rule of Civil

Procedure 23, as it avoided needless filing of protective actions by class members

who fear that class certification may be denied, and (2) not inconsistent with the

statute of limitations in the Clayton Act, which is purely procedural and “in no way

affect[s] the substantive rights of individual litigants.” 414 U.S. at 557-58 & n.29.

However, nothing in American Pipe suggests that judicial tolling of the antitrust

statute of limitations would extend to the statutes of repose in the Exchange Act.

Statutes of limitation are procedural devices that bar a remedy within

a period of time after the cause of action “accrues,” typically based on when the

plaintiff should have discovered its injury. By contrast, statutes of repose

extinguish the underlying right to bring a cause of action within a period of time

after the defendant acted, regardless of whether the plaintiff could have discovered

the injury. As this Court has held, the statutes of repose in the Exchange Act


3

implicate the “substantive rights” of all parties by allowing defendants to “put

[even] wrongful conduct behind them—and out of the law’s reach.” In re Exxon

Mobil Corp. Sec. Litig., 500 F.3d 189, 200 (3d Cir. 2007); Lieberman v.

Cambridge Partners, L.L.C., 432 F.3d 482, 490 (3d Cir. 2005).

Although statutes of limitation are presumptively subject to judicial

tolling, a statute of repose “will not be tolled for any reason.” CTS Corp. v.

Waldburger, 134 S. Ct. 2175, 2182-83 (2014). See Lampf, Pleva, Lipkind, Prupis

& Petigrow v. Gilbertson, 501 U.S. 350, 363 (1991) (equitable tolling not

applicable to statute of repose in the Securities Act of 1933). The District Court in

this case purported to distinguish Lampf on the ground that American Pipe tolling

is “legal” (rather than “equitable”) in nature because it serves the purposes of

Federal Rule of Civil Procedure 23. But nothing in American Pipe’s invocation of

“judicial tolling” as consistent with the purpose underlying Rule 23 makes class

action tolling a statutory rule. In fact, Rule 23 says nothing about tolling. Thus,

the U.S. Supreme Court, Second Circuit, Fourth Circuit, Sixth Circuit, Eleventh

Circuit, and many district courts have characterized American Pipe tolling as

judge-made “equitable tolling,” which is incompatible with a statute of repose.

Second, even if American Pipe tolling had a “legal” derivation in

Federal Rule of Civil Procedure 23, the Rules Enabling Act guarantees that the

Federal Rules of Civil Procedure “shall not” be used or interpreted to “abridge,


4

enlarge or modify any substantive right.” 28 U.S.C. § 2072(b). Because the

running of the statute of repose extinguishes a plaintiff’s cause of action and

confers on defendants the substantive right to put past events behind them, using

American Pipe tolling to preserve that cause of action would enlarge Plaintiffs’

substantive rights and abridge Defendants’ substantive rights. See Police & Fire

Ret. Sys. of Detroit v. IndyMac MBS, Inc., 721 F.3d 95, 109 (2d Cir. 2013), cert.

granted, No. 13-640, 134 S. Ct. 1515 (Mar. 10, 2014), cert. dismissed as

improvidently granted, 135 S. Ct. 42 (Sept. 29, 2014). For this independently

dispositive reason, the Rules Enabling Act precludes tolling the statutes of repose.

The District Court declined to follow the Second Circuit’s holding in

IndyMac on the ground that the class actions preceding these opt-out cases put

Defendants “on notice” that Plaintiffs might bring suit more than five years after

the alleged fraud. This was legal error. The statutes of repose gave Plaintiffs an

absolute time limit of five years to bring an action in court. See 28 U.S.C. §

1658(b)(2); 15 U.S.C. § 78t-1(b)(4). That statutory mandate contains no exception

based on “notice” that a plaintiff might take longer to bring an action. And while

notice considerations may be relevant to the objectives of a statute of limitations,

judicial implication of a notice exception is antithetical to the statute of repose.

Finally, the District Court incorrectly adopted Plaintiffs’ policy

argument that applying the statutes of repose without tolling would undermine the


5

goal of judicial economy and frustrate the ability of class members to opt out of

class action lawsuits. Policy arguments cannot toll a statute of repose. Moreover,

the arguments Plaintiffs advance are not sound policy. Even if more institutional

investors file individual claims within the five-year statutory window, district

courts are well equipped to manage multiple litigations efficiently, such as by

consolidating or coordinating individual cases with parallel class actions. It is the

institution of lawsuits after the class action has terminated that creates real burdens.

Rather than proceed alongside the Vytorin Class Actions from 2008 to 2013—

when documents were produced, witnesses were deposed, motions were decided,

and trial preparations were completed—Plaintiffs now seek to bring four new

lawsuits asserting virtually identical claims before a different district judge. If

anything threatens the judicial system with duplicative discovery and wasteful

motion practice, it is the seriatim litigation that these cases represent.

For these reasons and those discussed further below, the District

Court’s Order denying Defendants’ motion to dismiss Plaintiffs’ federal securities

claims should be reversed.

JURISDICTIONAL STATEMENT

These lawsuits assert claims under Sections 10(b), 20(a) and 20A of

the Exchange Act, as well as a pendent claim for common law fraud. The District

Court had jurisdiction over these actions pursuant to Section 27 of the Exchange

Act, 15 U.S.C. § 78aa, and 28 U.S.C. §§ 1331, 1337, and 1367.


6

On January 7, 2016, the District Court certified for interlocutory

appeal its August 26, 2015 Order denying Defendants’ motions to dismiss under 28

U.S.C. § 1292(b). (JA 0031-34.) Eight days later, on January 15, 2016,

Defendants filed timely petitions for interlocutory review of the District Court’s

Order. (Misc. Dkt. Nos. 16-8012, 16-8013, 16-8014, 16-8015 (3d Cir.).) This

Court granted Defendants’ petitions to appeal on February 11, 2016. (JA 0001-2.)

Accordingly, this Court has jurisdiction to review the certified Order pursuant to

the Interlocutory Appeals Act, 28 U.S.C. § 1292(b). See, e.g., Chesapeake

Appalachia, LLC v. Scout Petroleum, LLC, 809 F.3d 746, 752-53 (3d Cir. 2016).

STATEMENT OF QUESTIONS PRESENTED

The central question presented by this appeal is whether a class action

tolling principle that applies to certain statutes of limitation may be extended to the

five-year statutes of repose that govern claims under the Exchange Act—a matter

on which the courts of appeals are divided and this Court has never ruled.

Pursuant to 28 U.S.C. § 1292(b), the District Court certified for immediate appeal,

and this Court agreed to consider, two controlling questions of law:

(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; and

(2) Whether interpreting American Pipe tolling to extend the five-

year statutes of repose under the Exchange Act would abridge Defendants’

substantive rights, enlarge Plaintiffs’ substantive rights, or otherwise modify any


7

substantive right within the meaning of the Rules Enabling Act, 28 U.S.C. §

2072(b). (JA 0001-34.)

STATEMENT OF THE CASE

Defendant Merck & Co., Inc. (“Merck”) is a global pharmaceutical

company whose principal place of business is located in New Jersey. In November

2009, Merck & Co., Inc. merged with Schering-Plough Corporation (“Schering”).

The other defendants are individuals and entities presently or formerly affiliated

with Merck or Schering. Plaintiffs are institutional investors that claim to have

purchased Merck or Schering stock between January 2007 and March 2008.1

This case concerns a clinical trial that was designed to test the efficacy

of a cholesterol-lowering drug, Vytorin, in reducing the thickness of the carotid

arteries. Vytorin was developed and marketed by a joint venture between Schering

and Merck. One of the clinical trials conducted with respect to Vytorin, known as

the “ENHANCE” trial, examined the effectiveness of Vytorin relative to another

cholesterol-lowering drug (Zocor), in reducing the intima-media thickness of the

carotid arterial wall in a select group of patients.2

1 See JA 0057-242 (“North Sound Schering Cmplt.”), at ¶¶ 1, 18-24, Exs. A-C;

JA 0243-415 (“GIC Schering Cmplt.”), at ¶¶ 1, 18-22; JA 0416-611 (“GIC Merck Cmplt.”), at ¶¶ 1, 5, 21-25; JA 0612-810 (“North Sound Merck Cmplt.”), at ¶¶ 1, 5, 21-26, Exs. A-B.

2 See North Sound Schering Cmplt. ¶¶ 5, 41; GIC Schering Cmplt. ¶¶ 5, 39; GIC

Merck Cmplt. ¶¶ 37, 48, 55, 57, 59; North Sound Merck Cmplt. ¶¶ 38, 49, 56, 58, 60.


8

On January 14, 2008, Defendants published a news release disclosing

(among other things) that there was “no statistically significant difference between

treatment groups on the primary endpoint” of the ENHANCE trial — i.e., that

Vytorin did not reduce or slow the progression of the thickness in the walls of the

carotid arteries significantly more than Zocor alone. 3 On March 30, 2008, the

ENHANCE results were presented and debated at a scientific conference.4

After the price of Merck and Schering stock dropped on March 31,

2008, private plaintiffs filed class action lawsuits alleging that their losses were not

part of the risk properly borne by shareholders, but rather the result of fraud. The

class action cases were litigated in the District of New Jersey before Judge Dennis

M. Cavanaugh from 2008 to 2013.5 A settlement of the Vytorin Class Actions was

publicly announced on February 14, 2013, and approved by Judge Cavanaugh in

judgments entered on October 1, 2013.6

3 See North Sound Schering Cmplt. ¶¶ 118, 298, 313; GIC Schering Cmplt. ¶¶

116, 296, 311; GIC Merck Cmplt. ¶¶ 171, 311; North Sound Merck Cmplt. ¶¶ 172, 312.

4 See North Sound Schering Cmplt. ¶¶ 140, 307, 319; GIC Schering Cmplt. ¶¶

138, 305, 317; GIC Merck Cmplt. ¶¶ 15, 196-97; North Sound Merck Cmplt. ¶¶ 15, 197-98.

5 See In re Schering-Plough Corporation/ENHANCE Sec. Litig., No. 08-cv-397

(D.N.J.) (“Schering Vytorin Class Action”), JA 0811-87; In re Merck & Co., Inc. Vytorin/Zetia Sec. Litig., No. 08-cv-2177 (D.N.J.) (“Merck Vytorin Class Action”), JA 0888-940.

6 See Schering Vytorin Class Action, ECF No. 440; Merck Vytorin Class Action,

ECF No. 353.


9

On November 14, 2013, Plaintiffs who opted out of the Schering

Vytorin Class Action settlement brought the two present actions against Schering,

with Merck named as successor. On January 14, 2014, Plaintiffs who opted out of

the Merck Vytorin Class Action settlement brought the two present actions against

Merck directly. (JA 0009, 0039-40, 0045, 0050, 0055-56.) The four opt-out

Complaints are virtual carbon copies of the consolidated complaints filed in the

Vytorin Class Actions.7 As in the Vytorin Class Actions, Plaintiffs assert claims

under Sections 10(b), 20(a), and 20A of the Exchange Act. Based on the same

factual allegations, they also add a claim for common-law fraud under New Jersey

law. (JA 0009.) Other than the handful of institutional investors who are parties to

this appeal, no other shareholder of Merck or Schering opted out of the class

settlements and filed an individual lawsuit concerning Vytorin or the ENHANCE

trial.

The following chart summarizes the timeline of relevant key events:

May 1, 2007 Schering Defendants’ last alleged

insider trade.

November 19, 2007 Schering Defendants’ last alleged

misrepresentation to investors.

January 14, 2008 Merck and Schering publicly disclose

the failure of the ENHANCE trial to

meet its primary endpoint.

7 See Schering Vytorin Class Action, ECF No. 52; Merck Vytorin Class Action,

ECF No. 208. The opt-out Complaints were marked as “related” to the Vytorin Class Actions, but assigned to Judge Freda L. Wolfson in light of Judge Cavanaugh’s retirement. (JA 0231, JA 0414-15, JA 0610, JA 0807.)


10

January 18, 2008 The first putative class action complaint

is filed against Schering.

January 30, 2008 Merck Defendants’ last alleged

misrepresentation to investors.

March 30, 2008 The ENHANCE results are debated at a

scientific conference, causing Merck

and Schering stock prices to drop.

May 5, 2008 The first putative class action complaint

is filed against Merck.

2008-2013 The Vytorin Class Actions are litigated

before Judge Cavanaugh. Millions of

pages of documents are produced;

dozens of witnesses are deposed;

motions to dismiss, discovery motions,

class certification motions, and

summary judgment motions are

decided; joint pre-trial statements,

proposed jury instructions, verdict

forms, and other trial preparations are

completed.

February 14, 2013 Proposed settlements of the Vytorin

Class Actions are publicly announced,

only weeks before a scheduled trial.

October 1, 2013 Judge Cavanaugh gives final approval to

the Vytorin Class Action Settlements

and enters Final Judgments.

November 14, 2013 Plaintiffs-Appellees file two copycat

Complaints against Merck as successor

to Schering, nearly six years after the

last alleged securities violation. The

Schering opt-out cases are assigned to

Judge Freda Wolfson.

January 14, 2014 Plaintiffs-Appellees file two copycat

Complaints against Merck, nearly six

years after the last alleged securities

violation. The Merck opt-out cases are

assigned to Judge Freda Wolfson.


11

On November 17, 2014, Defendants served motions to dismiss the

opt-out Complaints as barred by the five-year statutes of repose that govern claims

under Sections 10(b), 20(a), and 20A of the Exchange Act. Defendants also

moved to dismiss the common-law fraud claim for failure to plead the element of

reliance required under New Jersey law. Plaintiffs served oppositions to those

motions on January 9, 2015. The motions were fully briefed and filed in the

District Court on January 30, 2015. (JA 0036-37, 0042-43, 0047-48, 0053.)

On August 26, 2015, Judge Wolfson denied Defendants’ motions to

dismiss. The District Court ruled that the five-year limitations periods that govern

Plaintiffs’ federal securities claims are “statute[s] of repose.” See JA 0013-14

(citing 28 U.S.C. § 1658(b)(2); 15 U.S.C. § 78t-1(b)(4)). The District Court also

recognized that Plaintiffs’ federal securities claims would be time-barred but for

the application of American Pipe tolling to the statutes of repose. (JA 0025-27.)

However, the District Court made two legal rulings that, taken together, led it to

accept Plaintiffs’ federal securities claims as timely: (1) class action tolling under

American Pipe represents a form of “legal,” rather than “equitable,” tolling, and (2)

applying American Pipe tolling to extend the five-year statutes of repose would not

“abridge, enlarge, or modify any substantive right” under the Rules Enabling Act.

(JA 0016-25.) The District Court also concluded that Plaintiffs had adequately


12

pled the element of reliance for purposes of surviving a motion to dismiss the

common-law fraud claim. (JA 0027-30.)

On September 30, 2015, Defendants asked the District Court to certify

the statute of repose question to this Court under 28 U.S.C. § 1292(b). (JA 0036,

0042, 0047, 0052.) After full briefing, the District Court granted Defendants’

motion for Section 1292(b) certification on January 7, 2016. (JA 0031-34.) On

January 15, 2016, Defendants petitioned this Court for leave to file an interlocutory

appeal. On January 28, 2016, Plaintiffs filed an Answer opposing Defendants’

petition. On February 11, 2016, this Court granted permission for Defendants to

appeal pursuant to 28 U.S.C. § 1292(b). (JA 0001-02.)

SUMMARY OF ARGUMENT

The federal securities claims asserted in these cases are time-barred.

As the District Court properly determined, each of those claims is subject to a five-

year statute of repose, and Plaintiffs filed their individual Complaints more than

five years after completion of the alleged fraud.

The District Court erred, however, in holding that the statutes of

repose were tolled by the pendency of the Vytorin Class Actions under American

Pipe. That case merely decided that class action tolling was consistent with a

particular statute of limitations. The Supreme Court has never extended American

Pipe tolling to a statute of repose, which provides certainty for litigants and courts

that claims not asserted within a fixed statutory window are beyond the law’s


13

reach. In fact, the Supreme Court has held that a statute of repose cannot be tolled

for any reason. Because American Pipe tolling is a form of judicial tolling, it

cannot apply to the statutes of repose at issue here.

The District Court, like some other lower courts, ruled that American

Pipe provides a form of “legal tolling” that applies even to statutes of repose. The

Supreme Court has not used the term “legal tolling” to designate situations in

which a statute of repose may be properly tolled, such as where a statute expressly

provides for tolling. Instead, the Supreme Court has explained that “a statute of

repose is a judgment that defendants should ‘be free from liability after the

legislatively determined period of time, beyond which liability will no longer exist

and will not be tolled for any reason.’” Waldburger, 134 S. Ct. at 2183; see also

Lampf, 501 U.S. at 363 (A period of repose is “inconsistent with tolling,” and “we

hold that tolling principles do not apply to that period.”).

Moreover, even if American Pipe tolling had a “legal” basis in Federal

Rule of Civil Procedure 23, the Rules Enabling Act mandates that procedural rules

“shall not abridge, enlarge or modify any substantive right.” 28 U.S.C. § 2072(b).

It is well established that a statute of repose extinguishes the plaintiff’s cause of

action and confers on defendants substantive rights to put past events behind them.

Using American Pipe tolling to preserve or revive an otherwise expired cause of


14

action would abridge Defendants’ substantive rights and enlarge Plaintiffs’

substantive rights, in violation of the Rules Enabling Act.

Finally, public policy arguments cannot override the statute of repose.

In any event, as this case illustrates, Plaintiffs are wrong when they contend that it

would be inefficient and unfair to enforce the statute of repose as written. Rather

than filing suit within the five-year repose period and coordinating their cases with

the discovery and briefing in the class actions, Plaintiffs now seek to start over

with four new cases before a different district judge. Seriatim litigation of the kind

represented by these lawsuits would burden the entire judicial system with

inefficiency, and unfairly deprive defendants of their statutory right to repose.

STANDARD OF REVIEW

On a motion to dismiss under Federal Rule of Civil Procedure

12(b)(6), a district court is required to accept as true the well-pleaded allegations in

the complaint. See Simon v. FIA Card Servs., N.A., 732 F.3d 259, 264 (3d Cir.

2013). To survive such a motion, the complaint “must contain sufficient factual

matter, accepted as true, to state a claim for relief that is plausible on its face.”

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted).

Courts will dismiss cases on statute of repose grounds where it is clear from the

face of the complaints that the claims are time-barred. See, e.g., Ranke v. Sanofi-

Synthelabo Inc., 436 F.3d 197, 201-06 (3d Cir. 2006) (affirming dismissal of

complaint where claims were time-barred under statute of repose).


15

This appeal of the District Court’s Order denying Defendants’

motions to dismiss the Complaints as time-barred raises pure questions of law.

Questions of law are subject to de novo plenary review. See Martinez v. Attorney

General of U.S., 693 F.3d 408, 411 (3d Cir. 2012) (“We review de novo questions

of law.”); In re Shenango Grp. Inc., 501 F.3d 338, 346 (3d Cir. 2007) (noting

“appropriate role of [the] Court to review de novo pure questions of law”).

ARGUMENT

I.

THE FEDERAL SECURITIES CLAIMS ARE TIME-

BARRED BY FIVE-YEAR STATUTES OF REPOSE

Plaintiffs’ federal securities claims are time-barred as a matter of law.

Each of those claims is subject to a five-year statute of repose under the Exchange

Act, and it is clear from the face of the Complaints that Plaintiffs waited more than

five years after completion of the alleged fraud to file these lawsuits.

A. The Applicable Five-Year Time Bars Are Statutes Of Repose

The timeliness of Plaintiffs’ claims under Sections 10(b) and 20(a) of

the Exchange Act is governed by 28 U.S.C. § 1658(b), which provides:

[A] private right of action that involves a claim of fraud, deceit,

manipulation, or contrivance in contravention of a regulatory requirement

concerning the securities laws [defined to include the Exchange Act] . . .

may be brought not later than the earlier of – (1) 2 years after the discovery

of the facts constituting the violation; or (2) 5 years after such violation.


16

This statutory structure pairs a two-year limitations period containing a built-in

discovery rule, with a five-year statute of repose providing an outer bound on the

time to bring a private right of action. The juxtaposition of those two time bars—

one flexible, the other fixed—reflects a deliberate legislative cutoff of liability five

years after the defendant acted, regardless of whether the plaintiff could have

discovered the cause of action. While the two-year period runs from a plaintiff’s

“discovery” of the alleged violation, the five-year period runs from “a specified

time since the defendant acted.” In re Exxon Mobil Corp. Sec. Litig., 500 F.3d

189, 194 n.6 (3d Cir. 2007).8

As this Court has held, the two-year period under Section 1658(b)(1)

is a “statute of limitations,” and the five-year period under Section 1658(b)(2) is a

“statute of repose.” Exxon Mobil, 500 F.3d at 195, 199-201 (recognizing “a two-

year statute of limitations and a five-year statute of repose”). The U.S. Supreme

Court has recently confirmed that Congress prescribed “an unqualified bar on

8 Congress enacted a parallel structure in Section 13 of the Securities Act of

1933, which contains a one-year statute of limitations and a three-year statute of

repose. See 15 U.S.C. § 77m (“No action shall be maintained to enforce any

liability created under section 77k or 77l(a)(2) of this title unless brought within

one year after the discovery of the untrue statement or the omission, or after

such discovery should have been made by the exercise of reasonable diligence .

. . . In no event shall any such action be brought to enforce a liability created

under section 77k or 77l(a)(1) of this title more than three years after the

security was bona fide offered to the public, or under section 77l(a)(2) of this

title more than three years after the sale.”).


17

actions instituted ‘5 years after [the] violation,’ § 1658(b)(2), giving defendants

total repose after five years.” Merck & Co., Inc. v. Reynolds, 559 U.S. 633, 650

(2010).

Plaintiffs also assert a claim under Section 20A of the Exchange Act.

That statute provides: “No action may be brought under this section more than 5

years after the date of the last transaction that is the subject of the violation.” 15

U.S.C. § 78t-1(b)(4). This categorical cutoff, like the one applicable to Section

10(b) and 20(a) claims, is a statute of repose. Thus, the Supreme Court has

referred to it as “the 5-year statute of repose specified in § 20A of the 1934 Act.”

Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 355

(1991).

B. Plaintiffs Filed These Actions After The Deadline

Mandated By The Five-Year Statutes Of Repose

Whereas a statute of limitations runs from the date a claim “accrues,”

a repose period runs from the date of the defendants’ last culpable act or

omission—regardless of whether the plaintiffs’ injury has been discovered or has

even occurred. See CTS Corp. v. Waldburger, 134 S. Ct. 2175, 2182, 2187 (2014).

In In re Exxon Mobil Corp. Securities Litigation, this Court explained that statutes

of limitation begin to run when all elements of a cause of action have occurred and

a reasonable person should have discovered that claim, while “statutes of repose

start upon the occurrence of a specific event and may expire before a plaintiff


18

discovers he has been wronged or even before damages have been suffered at all.”

500 F.3d at 199-200.9

Thus, the repose period under 28 U.S.C. § 1658(b)(2) “begins to run

on the date of the [last] alleged misrepresentation.” Exxon Mobil, 500 F.3d at 200;

see also McCann v. Hy-Vee, Inc., 663 F.3d 926, 932 (7th Cir. 2011) (“violation”

that triggers the statute of repose under Section 1658(b) is the alleged

misrepresentation). Under section 20A, the “transaction that is the subject of the

violation” is “purchasing or selling a security while in possession of material,

nonpublic information.” 15 U.S.C. § 78t-1(a), (b)(4).

Here, the last misrepresentation alleged in the Schering Complaints

occurred on November 19, 2007, and the last misrepresentation alleged in the

Merck Complaints occurred on January 30, 2008. (JA 0007, 0025.) The last

alleged insider trade was made on May 1, 2007. (JA 0007, 0026.) Thus, the

statute of repose expired on November 19, 2012 for the misrepresentation claims

against Schering, on January 30, 2013 for the misrepresentation claims against

Merck, and on May 1, 2012 for the insider trading claims. Plaintiffs, however, did

9 See also 4 Charles A. Wright & Arthur R. Miller, FEDERAL PRACTICE AND

PROCEDURE § 1056 (4th ed. 2015) (“Although the commencement date for the

applicable statute of limitations may be deferred and hinge upon the injured

party’s discovery of the existence of the cause of action, the point of

commencement for the applicable statute of repose is commonly the date of the

last act or omission that caused the plaintiff’s injury.”).


19

not file their Complaints against Merck as successor to Schering until November

14, 2013, and did not file their Complaints against Merck in its own right until

January 14, 2014—a year late for the misrepresentation claims, and 18 months late

for the insider trading claims. Indeed, even assuming that the statute of repose

began to run when Plaintiffs allege the fraud was completely corrected and the

“full and detailed” ENHANCE results were revealed to the public—March 30,

2008—Plaintiffs still commenced these actions seven to nine months beyond the

five-year time limit.10

C. Statutes Of Repose Are Fundamentally Different From

Statutes Of Limitation

Statutes of limitation create an affirmative defense in cases where the

plaintiff fails to bring suit within a period of time after the cause of action accrued.

As such, statutes of limitation are procedural devices that bar a legal remedy. See

Ma v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 597 F.3d 84, 88 n.4 (2d Cir.

2010); Margolies v. Deason, 464 F.3d 547, 551 (5th Cir. 2006); Bradford-White

Corp. v. Ernst & Whinney, 872 F.2d 1153, 1161 (3d Cir. 1989).

“A statute of repose by contrast is substantive. It extinguishes any

right to bring any type of cause of action against a party, regardless of whether

10

See North Sound Schering Cmplt. ¶¶ 1, 11, 38, 42, 45, 67, 71, 104-05, 138, 140, 307, 319-20; GIC Schering Cmplt. ¶¶ 1, 11, 36, 40, 43, 65, 69, 102-03, 136, 138, 305, 317-18; GIC Merck Cmplt. ¶¶ 15, 162, 196, 204-05, 449; North Sound Merck Cmplt. ¶¶ 15, 163, 197, 205-06, 450.


20

such action has accrued.” Augustis v. United States, 732 F.3d 749, 752-53 (7th

Cir. 2013). See also Albillo-De Leon v. Gonzales, 410 F.3d 1090, 1097 & n.5 (9th

Cir. 2005) (“A statute of repose, like a jurisdictional prerequisite, ‘extinguishes a

cause of action after a fixed period of time.’”); Hinkle by Hinkle v. Henderson, 85

F.3d 298, 301 (7th Cir. 1996) (“This Court has stated that statutes of limitations are

procedural, barring only the remedy, while statutes of repose are substantive,

extinguishing the right to bring a cause of action.”).

In Police & Fire Retirement System of the City of Detroit v. IndyMac

MBS, Inc., 721 F.3d 95 (2d Cir. 2013), the Second Circuit explained that a statute

of repose—unlike a statute of limitations—is an absolute cut-off that “extinguishes

a plaintiff’s cause of action” and creates a “substantive right [for defendants] to be

free from liability after a legislatively-determined period of time.” Id. at 106

(emphasis in original). Because statutes of repose affect the underlying right, not

just the availability of remedies, “they run without interruption once the necessary

triggering event has occurred.” Id. (internal quotation marks omitted). The

Second Circuit’s observation in IndyMac was squarely within the teachings of the

U.S. Supreme Court that, after a date certain, statutes of repose entitle the

defendant to “put past events behind him” by providing a “fresh start or freedom

from liability.” Waldburger, 134 S. Ct. at 2183; see also Reynolds, 559 U.S. at

650 (five-year time limit under the Exchange Act gives defendants “total repose”).


21

The Second Circuit’s understanding of the nature of statutes of repose

is also consistent with that of this Court. For example, in concluding that federal

securities fraud “claims had been extinguished by a statute of repose,” this Court

recognized that statutes of repose “affect substantive rights” of plaintiffs and

defendants alike. Lieberman v. Cambridge Partners, L.L.C., 432 F.3d 482, 490-92

(3d Cir. 2005). By their nature, statutes of repose may impose on plaintiffs “‘the

hardship of having a claim extinguished before it is discovered, or perhaps before

it even exists.’” Luzadder v. Despatch Oven Co., 834 F.2d 355, 358 (3d Cir. 1987)

(quoting William Keeton, et al., PROSSER AND KEETON ON THE LAW OF TORTS § 30,

at 168 (5th ed. 1984)). Likewise, statutes of repose reflect a legislative judgment

that there comes a time when allowing defendants to “put their wrongful conduct

behind them—and out of the law’s reach—is more important than providing those

wronged with a legal remedy, even if the victims never had the opportunity to

pursue one.” Exxon Mobil, 500 F.3d at 199-200.

II.

THE FIVE-YEAR STATUTES OF REPOSE ARE NOT

SUBJECT TO TOLLING UNDER AMERICAN PIPE

Plaintiffs nonetheless argue—and the District Court agreed—that the

five-year statutes of repose under the Exchange Act were tolled by the Vytorin

Class Actions under American Pipe. This is incorrect for two threshold reasons.

First, American Pipe tolling does not apply on its face because that case concerned


22

a particular statute of limitations, and its holding does not extend to statutes of

repose. Second, American Pipe invoked “judicial tolling,” and a statute of repose

cannot be tolled without express statutory license. It is undisputed on this appeal

that no statutory text tolls the five-year repose period.

A. American Pipe Tolling Does Not Apply On Its Face

In American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974), the

U.S. Supreme Court held that the filing of a class action complaint tolled a statute

of limitations for members of a putative class who later sought to intervene by

asserting the same antitrust claims at issue in the class action. American Pipe

addressed a particular time bar, the Clayton Act’s four-year statute of limitations,

which runs from the date “the cause of action accrued,” 15 U.S.C. § 15b, and is

suspended during related suits brought by the federal government, id. § 16(b),

recodified as amended at 15 U.S.C. § 16(i) (Pub. L. No. 93-528 (1974), Pub. L.

No. 94-435 (1976)). Neither the four-year statute of limitations following accrual,

nor the suspension provision tolling that statute of limitations for a government

action, reflects a repose period that runs from the date the defendant acted. Citing

legislative history that the Clayton Act’s statute of limitations was “strictly a

procedural limitation” that would “in no way affect the substantive rights of

individual litigants,” the American Pipe court concluded that tolling during the

pendency of a class action was not inconsistent with the legislative scheme set

forth in the Clayton Act. American Pipe, 414 U.S. at 557-58 & n.29.


23

Importantly, American Pipe interpreted a particular “statute of

limitations,” considered whether tolling was consistent with that “statute of

limitations,” and expressly limited its holding to the “statute of limitations.” See,

e.g., 414 U.S. at 558 (invoking a “judicial power to toll statutes of limitation”); id.

at 554 (“the commencement of a class action suspends the applicable statute of

limitations”); id. at 559 (“the statute of limitations is tolled under certain

circumstances not inconsistent with the legislative purpose”). In each case, the

Court explained, the ultimate question is “whether tolling the limitation in a given

context is consonant with the legislative scheme.” Id. at 558.

Wholly unlike the statute of limitations at issue in American Pipe,

tolling is antithetical to the statute of repose at issue here, and thus would not be

consonant with the legislative scheme of the Exchange Act. As American Pipe

illustrates, courts “presume” that tolling applies to a statute of limitations. See

Lozano v. Montoya Alvarez, 134 S. Ct. 1224, 1232 (2014).11

By contrast, courts

prohibit tolling a statute of repose. See, e.g., IndyMac, 721 F.3d at 106 (A statute

of repose is subject only to “legislatively created exceptions,” and not to judge-

made tolling.); First United Methodist Church of Hyattsville v. U.S. Gypsum Co.,

882 F.2d 862, 866 (4th Cir. 1989) (As “substantive grants of immunity,” statutes of

11

See also Holland v. Florida, 560 U.S. 631, 645-46 (2010) (A nonjurisdictional federal statute of limitations is presumptively subject to equitable tolling.); Young v. United States, 535 U.S. 43, 49-50 (2002) (A statute of limitations is customarily subject to equitable tolling.).


24

repose will “not [be] tolled for any reason because to do so would upset the

economic balance struck by the legislative body.”); In re Bear Stearns Cos., Inc.

Sec., Derivative, & ERISA Litig., 995 F. Supp. 2d 291, 301-03 (S.D.N.Y. 2014)

(“[T]olling is never consonant with a statute of repose” because tolling would

“violate a defendant’s substantive rights.”); Cohen v. Telsey, No. 09-cv-2033, 2009

WL 3747059, at *9 (D.N.J. Nov. 2, 2009) (“[T]olling principles do not apply to the

five-year statute of repose.”); 4 Charles A. Wright & Arthur R. Miller, FEDERAL

PRACTICE AND PROCEDURE § 1056 (4th ed. 2015) (“[A] repose period is fixed and

its expiration will not be delayed by estoppel or tolling.”). As the U.S. Supreme

Court recently reaffirmed, after the legislatively determined period of time for a

statute of repose, “‘liability will no longer exist and will not be tolled for any

reason.’” Waldburger, 134 S. Ct. at 2183 (emphasis added).

This result is consistent with the statutes of repose that govern

Plaintiffs’ federal securities claims: the text of the five-year statutes of repose

provides an absolute outer limit on the time for bringing a private right of action,

and the legislative history confirms that the outer limit cannot be tolled. See 28

U.S.C. § 1658(b)(2) (codifying Section 804(a) of the Sarbanes-Oxley Act of 2002,

Pub. L. No. 107-204, § 804(a), 116 Stat. 745, 801 (2002)); S. Rep. No. 107-146, at

29 (2002) (“Where there is a bifurcated limitations period, with an inner limit

running from the time when the fraud was or should have been discovered, the


25

inner limit . . . mak[es] tolling unnecessary. The [outer limit] is a period of repose

inconsistent with tolling.”) (internal quotation marks omitted).

Because American Pipe addressed only a particular statute of

limitations that the Supreme Court determined to be fully consistent with tolling,

the rationale and holding of that case do not justify tolling a statute of repose that is

flatly inconsistent with tolling.

B. American Pipe Tolling Is “Equitable” In Nature

Although no form of tolling can be applied to a statute of repose, it is

especially clear that statutes of repose are immune to “equitable tolling.” See

Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 363 (1991)

(Equitable tolling is fundamentally incompatible with the statute of repose under

the Securities Act, which Congress intended “clearly to serve as a cutoff.” ); Fed.

Hous. Fin. Agency v. UBS Ams. Inc., 712 F.3d 136, 140 (2d Cir. 2013) (Statutes of

repose are impervious to equitable tolling.); Williams v. Wells Fargo Home Mortg.,

Inc., 410 F. App’x 495, 499 (3d Cir. 2011) (Because the right to relief ceases to

exist once a statute of repose has run, equitable tolling does not apply.) (citing

Jones v. Saxon Mortg., Inc., 537 F.3d 320, 327 (4th Cir. 1998)); Del Sontro v.

Cendant Corp., 223 F. Supp. 2d 563, 572-74 (D.N.J. 2002) (Statutes of repose for

securities fraud claims cannot be salvaged by equitable tolling.). American Pipe

tolling is foreclosed here because it constitutes a species of equitable tolling.


26

By its very nature, equitable tolling is “judicially created.” See Credit

Suisse Sec. (USA) LLC v. Simmonds, 132 S. Ct. 1414, 1419 n.6 (2012) (internal

quotation marks omitted); Holland v. Florida, 560 U.S. 631, 650 (2010)

(“Equitable tolling . . . asks whether federal courts may excuse a [ ] failure to

comply with federal timing rules.”) (emphasis removed); John Hancock Life Ins.

Co. (USA) v. JP Morgan Chase & Co., 938 F. Supp. 2d 440, 447 (S.D.N.Y. 2013)

(Equitable tolling is “rooted in common law principles and permits a court—after

weighing the equities in the discrete case before it—to authorize plaintiffs to bring

actions outside a limitations period.”). By contrast, legal tolling is a “legislatively

created exception” to a time bar. See P. Stolz Family P’ship L.P. v. Daum, 355

F.3d 92, 102 (2d Cir. 2004) (quoting Calvin W. Corman, LIMITATION OF ACTIONS

§ 1.1, at 4-5 (1991)); Angles v. Dollar Tree Stores, Inc., 494 F. App’x. 326, 331

n.9 (4th Cir. 2012) (Legal tolling is “derived from a statutory source.”); In re

Lehman Bros. Sec. & ERISA Litig., 800 F. Supp. 2d 477, 482 (S.D.N.Y. 2011)

(“[L]egal tolling” is provided for “by statute.”).12

However, nothing in the

Exchange Act or Sarbanes-Oxley provides for tolling the statutes of repose.

12

The federal statute of limitations for seeking a writ of habeas corpus by a person in custody pursuant to a State judgment provides an example of statutory, or legal, tolling. It states expressly: “[t]he time during which a properly filed application for State post-conviction or other collateral review . . . is pending shall not be counted toward any period of limitation under this subsection.” 28 U.S.C. § 2244(d)(2).


27

It is true that American Pipe interpreted Rule 23 of the Federal Rules

of Civil Procedure and concluded that tolling the statute of limitations would

promote judicial economy and avoid “unnecessary filing of repetitious papers and

motions.” 414 U.S. at 550-51, 553. But even assuming that Rule 23 constitutes a

“legislative” or “statutory” source, American Pipe did not distill a universal tolling

principle from Rule 23 itself. Rather, the American Pipe court emphasized that

class action tolling “would not in this circumstance” frustrate the statute of

limitations in the Clayton Act, and would be permissible in future cases only when

“consonant with the legislative scheme.” Id. at 555, 558-59. That context-based

analysis would have been unnecessary if Rule 23 set forth a federal tolling rule

applicable to all class actions. See id. at 554 n.24 (noting that the Rule 23

Advisory Committee disclaimed any intention to adopt an across-the-board tolling

rule); see also Chardon v. Fumero Soto, 462 U.S. 650, 658-62 (1983) (rejecting

argument that American Pipe “established a uniform federal procedural rule

applicable to [all] class actions”).

Indeed, it is perfectly clear that Rule 23 does not prescribe a federal

tolling rule. Rule 23 says nothing at all about tolling. That is why American Pipe

expressly invoked “judicial tolling” and the “judicial power to toll statutes of

limitation.” 414 U.S. at 557-59 (citing cases in which the Supreme Court

permitted equitable tolling). And that is why the Supreme Court has continued to


28

recognize American Pipe as a decision “specifically grounded in policies of

judicial administration.” Smith v. Bayer Corp., 131 S. Ct. 2368, 2379 n.10 (2011).

The fact that American Pipe tolling was informed by policies underlying class

action procedure does not transform it into a statutory command. See Vaught v.

Showa Denko K.K., 107 F.3d 1137, 1146 (5th Cir. 1997) (American Pipe tolling is

“a judge-made practice.”). On the contrary, class action tolling is a “judicially-

created rule premised on ‛traditional equitable considerations’ of fairness, judicial

economy and needless multiplicity of lawsuits.” Footbridge Ltd. Trust v.

Countrywide Fin. Corp., 770 F. Supp. 2d 618, 626 (S.D.N.Y. 2011) (quoting

Albano v. Shea Homes Ltd. P’ship, 634 F.3d 524, 537 (9th Cir. 2011)).

For all of these reasons, it is hardly surprising that the Supreme Court

has characterized American Pipe as a species of “equitable tolling.” See Irwin v.

Dep’t of Veterans Affairs, 498 U.S. 89, 96 & n.3 (1990) (citing American Pipe as

an example of cases in which “[w]e have allowed equitable tolling”). See also

Young v. United States, 535 U.S. 43, 49 (2002) (citing American Pipe as an

example of “equitable tolling” of a statute of limitations); Greyhound Corp. v. Mt.

Hood Stages, Inc., 437 U.S. 322, 338 n.* (1978) (Burger, C.J., concurring) (citing

American Pipe as an example of the authority of a federal court “to toll a statute of

limitations on equitable grounds”).


29

Moreover, the Second Circuit, Fourth Circuit, Sixth Circuit, Eleventh

Circuit, and many district courts have referred to American Pipe a form of

“equitable tolling.” See, e.g., Casey v. Merck & Co., Inc., 653 F.3d 95, 97, 104 (2d

Cir. 2011) (referring to class action tolling under American Pipe as “equitable

tolling”); Bridges v. Dep’t of Md. State Police, 441 F.3d 197, 211 (4th Cir. 2006)

(“The American Pipe/Crown, Cork & Seal equitable tolling rule is a limited

exception to the universal rule that statutes of limitations are impervious to

equitable exceptions.”); Veltri v. Bldg. Serv. 32B-J Pension Fund, 393 F.3d 318,

322-23 (2d Cir. 2004) (citing American Pipe as an example of “equitable tolling”);

Raie v. Cheminova, Inc., 336 F.3d 1278, 1279, 1283 (11th Cir. 2003) (“Appellants

are not entitled to equitable tolling under the doctrine of American Pipe” because

the statute of limitations at issue was not subject to “equitable tolling under

American Pipe”); Wade v. Danek Med., Inc., 182 F.3d 281, 286 (4th Cir. 1999) (In

American Pipe, the Supreme Court prescribed an “equitable tolling rule” and “held

that the statute of limitations in a subsequently filed federal question action should

be equitably tolled during the pendency of a federal class action.”); Youngblood v.

Dalzell, 925 F.2d 954, 959 n.3 (6th Cir. 1991) (discussing “equitable tolling under

precedent such as American Pipe”); John Hancock, 938 F. Supp. 2d at 447

(“American Pipe tolling is still fundamentally about permitting a plaintiff who has

not otherwise filed a timely claim to do so and thus is still equitable in nature.”);


30

Joosten v. United States, No. 95-cv-2491, 1996 WL 495547, at *5 (D.N.J. June 5,

1996) (twice characterizing American Pipe as a form of “equitable tolling”).

C. The District Court Erred In Ruling That

American Pipe Tolling Is “Legal” In Nature

Dismissing all of this analysis and authority as non-binding, the

District Court concluded that American Pipe tolling is “legal” in nature because it

derives from a judicial interpretation that “‘serves the purposes of Rule 23’ and

‘encourages judicial economy.’” JA 0017, 0021 (quoting Joseph v. Wiles, 223

F.3d 1155, 1166-67 (10th Cir. 2000)). In so doing, the District Court adopted the

Tenth Circuit’s view that American Pipe represents a form of “legal tolling” that

extends to a statute of repose. Yet Joseph did not provide any meaningful analysis

to support this view. Instead, the Tenth Circuit summarily stated that “the tolling

[plaintiff] claims is the legal tolling that occurs any time an action is commenced

and class certification is pending.” Joseph, 223 F.3d at 1166-67. And for that

legal conclusion, the Tenth Circuit cited a single case: “Cf. Korwek v. Hunt, 827

F.2d 874, 879 (2d Cir. 1987) (tolling no longer appropriate after court ruled

definitively to deny class certification).” Id. at 1167. Korwek, however, did not

remotely suggest that American Pipe represents a form of “legal” tolling. In

Korwek, the Second Circuit merely held that American Pipe did not toll the statute

of limitations for a class nearly identical in scope to a class that was previously

denied certification. See Korwek, 827 F.2d at 879 (dismissing subsequent class


31

action as untimely, abusive, and beyond the “outer limits of the American Pipe

doctrine”).

To be sure, the Joseph court stated that American Pipe tolling “serves

the purposes of Rule 23 of the Federal Rules of Civil Procedure.” Joseph, 223

F.3d at 1167-68. But a judicial policy judgment that tolling serves the purposes of

Rule 23 does not make tolling a statutory rule. It is only the Federal Rules of Civil

Procedure, not judicial interpretations seeking to promote their purposes, that are

given statutory effect. See 28 U.S.C. § 2072(b). And Rule 23 says nothing about

tolling.

Finally, the District Court’s reliance on cases that have followed

Joseph, including two decisions by a judge in the District of New Jersey, is equally

misplaced. See JA 0017-20 & n.14 (citing In re Merck & Co., Inc. Sec., Derivative

& ERISA Litig., No. 11-cv-6259, 2012 WL 6840532, at *3-5 (D.N.J. Dec. 20,

2012) and Prudential Ins. Co. of Am. v. Bank of Am., Nat’l Assoc., 14 F. Supp. 3d

591, 618 (D.N.J. 2014)). Those cases lack any independent reasoning to refute the

substantial body of evidence that American Pipe tolling is a judge-made equitable

doctrine, and simply rely on the Tenth Circuit’s unpersuasive decision in Joseph.


32

III.

WHETHER LEGAL OR EQUITABLE IN NATURE,

AMERICAN PIPE TOLLING CANNOT BE APPLIED TO A

STATUTE OF REPOSE UNDER THE RULES ENABLING ACT

Regardless of whether American Pipe tolling is legal or equitable in

nature, applying American Pipe to toll a statute of repose would abridge, enlarge,

or modify one or more substantive rights in violation of the Rules Enabling Act.

See 28 U.S.C. § 2072(b) (The Federal Rules of Civil Procedure “shall not abridge,

enlarge or modify any substantive right.”); Wal-Mart Stores, Inc. v. Dukes, 564

U.S. 338, 131 S. Ct. 2541, 2561 (2011) (“[T]he Rules Enabling Act forbids

interpreting Rule 23 to ‘abridge, enlarge or modify any substantive right.’”).

For this independently dispositive reason, American Pipe tolling

cannot be applied to the five-year statutes of repose as a matter of law.

A. Applying American Pipe Tolling To A Statute Of Repose

Would Impermissibly Modify Substantive Rights

In American Pipe, the Supreme Court determined that judicial tolling

of the statute of limitations was consonant with the legislative scheme of the

Clayton Antitrust Act, and thus would not abridge or modify a substantive right

under the Rules Enabling Act. 414 U.S. at 558 & n.29. In reaching this

conclusion, the Supreme Court cited legislative history demonstrating that the

antitrust statute of limitations was “strictly a procedural limitation” that would “in

no way affect the substantive rights of individual litigants.” Id. By contrast here,


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33

tolling is irreconcilable with the statute of repose that governs Plaintiffs’ federal

securities claims and affects the substantive rights of all parties.

In Police & Fire Retirement System of Detroit v. IndyMac MBS, Inc.,

721 F.3d 95 (2d Cir. 2013), the Second Circuit explained that the statute of repose

“‘extinguishes a plaintiff’s cause of action’” and creates a “‘substantive right [for

defendants] to be free from liability.’” Id. at 106 (emphasis in original). Assuming

arguendo that American Pipe tolling has a “legal” derivation in Federal Rule of

Civil Procedure 23,13

the Second Circuit recognized the mandate of the Rules

Enabling Act that the Federal Rules of Civil Procedure “shall not” abridge, enlarge

or modify any substantive right. Id. at 109. And because “[p]ermitting a plaintiff

to file a complaint” after the underlying cause of action had been extinguished

would “necessarily enlarge or modify a substantive right and violate the Rules

Enabling Act,” the court concluded that American Pipe tolling could not be applied

to the statute of repose. Id.

As outlined in Section I.C, supra, the Second Circuit’s reasoning in

IndyMac is consistent with the decisions of this Court and the U.S. Supreme Court.

For example, in Lieberman v. Cambridge Partners, L.L.C., 432 F.3d 482 (3d Cir.

2005), this Court refused to revive an expired securities fraud claim because doing

13

The Second Circuit doubted the Tenth Circuit’s conclusion to this effect in

Joseph, but did not decide the case on that basis. See IndyMac, 721 F.3d at 105


34

so would “affect substantive rights by creating new causes of action.” Id. at 491-

92. In concluding that the plaintiffs’ claims were “extinguished” by the statute of

repose, this Court cited with approval the same Second Circuit decision on which

IndyMac relied for the proposition that “‘statutes of repose affect the availability of

the underlying right.’” Id. at 490 (quoting P. Stolz Family P’ship L.P. v. Daum,

355 F.3d 92, 102 (2d Cir. 2004)). Similarly, the U.S. Supreme Court recently

confirmed that a statute of repose is an “absolute” time limit that “will not be tolled

for any reason.” CTS Corp. v. Waldburger, 134 S. Ct. 2175, 2182-83 (2014).

In short, using American Pipe tolling to preserve or revive a cause of

action that would otherwise expire abridges a defendant’s substantive right to “put

past events behind him,” and enlarges a plaintiff’s substantive “right to bring a

civil action.” Id.; see Burlington N. & Santa Fe Ry. Co., Inc. v. Poole Chem. Co.,

Inc., 419 F.3d 355, 363 (5th Cir. 2005) (A statute of repose establishes a

substantive “‘right not to be sued’” by abolishing the underlying cause of action;

“life cannot thereafter be breathed back into it.”). As a result, even if American

Pipe tolling derives from Federal Rule of Civil Procedure 23, the Rules Enabling

Act precludes tolling the statute of repose.

(observing that American Pipe “seemed to rely on the equitable power of the

courts to toll statutes of limitations”).


35

B. The District Court Erred In Ruling That American Pipe Tolling

Of Statutes Of Repose Would Not Modify Substantive Rights

The District Court declined to follow the Second Circuit’s decision in

IndyMac, and held that tolling the statutes of repose under American Pipe would

not offend the Rules Enabling Act. (JA 0023.) Despite acknowledging that

statutes of repose implicate “substantive rights,” the District Court concluded that

Defendants’ rights were not abridged because the pendency of the Vytorin Class

Actions put them “on notice” that other litigants might bring suit more than five

years after completion of the alleged fraud. (JA 0023-25.)14

This response cannot

withstand scrutiny.

First, there is no “notice” exception in the text of the five-year statutes

of repose. See 28 U.S.C. § 1658(b)(2) (A private right of action under the

Exchange Act “may be brought not later than . . . 5 years after [the alleged]

violation.”); 15 U.S.C. § 78t-1(b)(4) (“No action may be brought under this section

more than 5 years after the date of the last transaction that is the subject of the

violation.”). When Congress allows a statutory time period to be satisfied by

notice without filing a lawsuit, it says so expressly. See, e.g., Jesinoski v.

14

See JA 0024 (“‘So long as the defendant has fair notice of the type and number

of claims that could be asserted against it . . . then there is no unfair surprise

when a class member assumes responsibility for its own individual claim.’”

(quoting In re BP p.l.c. Sec. Litig., No. 4:13-cv-1393, 2014 WL 4923749, at *5

(S.D. Tex. Sept. 30, 2014)); JA 0024 (“‘None of the purposes of the [securities

laws] . . . will be served by barring these claims; Defendants cannot contend


36

Countrywide Home Loans, Inc., 135 S. Ct. 790, 792 (2015) (three-year statutory

period to exercise right of rescission under the Truth in Lending Act expressly

states that it may be satisfied by “notifying the creditor”). Here, however,

Congress required securities plaintiffs to bring an action within five years, and

declined to enact any exception based on notice to defendants that the plaintiff

(much less a generic group of unidentified plaintiffs) might take longer to do so.

Courts “must assume that Congress meant what it said.” Pinter v. Dahl, 486 U.S.

622, 653 (1988).

Second, a judicially-created “notice” exception to an absolute time bar

would eviscerate the purpose of the statute of repose. Notice considerations may,

in some cases, be relevant to the objectives of a statute of limitations. See

American Pipe, 414 U.S. at 554-55 (describing purpose of “statute of limitations”

to provide “notice” of plaintiffs’ substantive claims and generic identities);

McKowan Lowe & Co., Ltd. v. Jasmine, Ltd., 295 F.3d 380, 384-85 (3d Cir. 2002)

(describing “the twin functions of statutes of limitations—providing defendants

with timely notice and avoiding stale claims”); Sperling v. Hoffmann-LaRoche,

Inc., 24 F.3d 463, 471-72 (3d Cir. 1994) (Statutes of limitation “‘put defendants on

notice of adverse claims.’”) (quoting Crown, Cork & Seal Co., Inc. v. Parker, 462

that they were not on notice of them.’”) (quoting Prudential Ins. Co. of Am. v.

Bank of Am., Nat’l Assoc., 14 F. Supp. 3d 591, 618 (D.N.J. 2014)).


37

U.S. 345, 352 (1983)). But it was error for the District Court to import the same

notice considerations into the qualitatively distinct context of a statute of repose.

The purpose of a statute of repose is not satisfied by providing

defendants with generic notice that they may need to answer potential claims from

an indeterminate number of persons at some future time. Instead, the goal is to

require filing of actual claims by a date certain, and to assure defendants that

claims not instituted within the statutory window may never be brought. See

Exxon Mobil, 500 F.3d at 199-200 (statute of repose is a “defendant-friendly”

mechanism that puts even unlawful conduct “out of the law’s reach”); Daum, 355

F.3d at 104 (statute of repose provides investors and the business community with

an “easily ascertainable and certain date for the quieting of litigation”). If statutes

of repose are to provide certainty and finality, as Congress intended, they cannot be

subject to an amorphous notice exception or, indeed, to any exception. See

Waldburger, 134 S. Ct. at 2183 (Statutes of repose are “‘absolute.’”); Norris v.

Wirtz, 818 F.2d 1329, 1332 (7th Cir. 1987) (“The legislative history in 1934 makes

it pellucid that Congress included statutes of repose because of fear that lingering

liabilities would disrupt normal business and facilitate false claims. It was

understood that the [statutory] rule was to be absolute.”), overruled on other

grounds, Short v. Belleville Shoe Mfg. Co., 908 F.2d 1385, 1387, 1389 (7th Cir.

1990).


38

Third, reliance on “notice” as a basis for tolling assumes the

conclusion: a class action cannot provide notice of future lawsuits after the statute

of repose runs unless the pendency of a class action tolls the statute of repose in the

first place. Nor does the Rules Enabling Act allow substantive rights to be

abridged based on the circular argument that a defendant had “notice” that its

rights might be abridged.15

C. American Pipe Tolling Does Not Re-Define When An

Individual Action Is Filed In Federal Court

In their Answer opposing Defendants’ Petition for Leave to Appeal,

Plaintiffs declined to defend the District Court’s rationale for finding no violation

of the Rules Enabling Act: that Defendants were “on notice” that these cases

might be brought more than five years after the alleged fraud. (JA 0023-24.)

Instead, Plaintiffs rested their opposition on a completely different argument that

the District Court never embraced: that American Pipe does not “toll” the time for

bringing suit after all, but fundamentally re-defines when an individual claim is

brought by investors who opt out of the class. According to Plaintiffs, if the claims

of all absent class members are deemed to have been filed (rather than “tolled”)

when the original class complaint is brought, no new cause of action is created

15

The District Court’s attempt to distinguish this Court’s decision in Lieberman

on the ground that “no new causes of action would be created by the mere

application of the tolling doctrine” (JA 0025) also begs the question. If

Plaintiffs’ claims were extinguished by the statute of repose, then reviving those


39

when an opt-out plaintiff takes over the prosecution of its claims from the class

representative. Therefore, the argument goes, a defendant’s substantive right to

repose cannot be abridged no matter how many years elapse before the opt-out

plaintiff files an individual complaint.

But the entire premise of Plaintiffs’ argument is incorrect. American

Pipe did not purport to re-define when an action is filed by absent class members.

As explained in Section II.A, supra, American Pipe invoked a “judicial power to

toll statutes of limitation.” 414 U.S. 538, 558 (1974) (emphasis added); see id. at

555 (referring to “the tolling rule we establish here”). If absent class members

were deemed to have brought their own lawsuit when a putative class action is

filed, there would be nothing to toll. Under the rule of American Pipe, it is the

class action—and only the class action—that is deemed filed for class members.

See id. at 550 (“the filing of a timely class action complaint commences the action

for all members of the class as subsequently determined”) (emphasis added).

Moreover, the District Court determined that American Pipe tolling

rests on an interpretation of Federal Rule of Civil Procedure 23. (JA 0020-21.)

However, Rule 23 governs class action procedure, not how or when an action is

commenced. It is Federal Rule of Civil Procedure 3 that governs commencement

of a civil action in federal court. See Fed. R. Civ. P. 3 (“A civil action is

claims through American Pipe tolling would indeed “affect substantive rights


40

commenced by filing a complaint with the court.”). And Rule 3 is nowhere

mentioned in American Pipe or its progeny.

Accordingly, if class certification is denied, absent class members

who previously benefited from American Pipe tolling must “file their own suits or

[ ] intervene as plaintiffs in the pending action.” Crown, Cork, 462 U.S. at 354;

see also Mississippi ex rel. Hood v. AU Optronics Corp., 134 S. Ct. 736, 743

(2014) (A “plaintiff” is the party who files suit in a court of law, and “certainly

does not mean ‘anyone, named or unnamed, whom a suit may benefit’”). Likewise

here, Plaintiffs filed individual Complaints instituting four new civil actions that

started the litigation process over from the beginning, rather than picking up where

the class representatives left off when the class actions settled on the eve of trial.

In short, Plaintiffs’ substitute rationale for the result reached by the

District Court does not save their claims from the mandate of the Rules Enabling

Act. As the District Court determined, Plaintiffs brought these cases in November

2013 and January 2014—not in 2008. (JA 0009, 0025-27.) Allowing Plaintiffs to

bring an action more than five years after the last alleged violation would enlarge

their substantive rights by reviving an expired cause of action, and abridge

Defendants’ substantive right to repose.

by creating new causes of action.” Lieberman, 432 F.3d at 491-92.


41

IV.

POLICY ARGUMENTS DO NOT OVERCOME THE

DISPOSITIVE EFFECT OF THE STATUTE OF REPOSE

Finally, in two footnotes toward the end of its August 26, 2015

Opinion, the District Court agreed with Plaintiffs’ policy argument that it would be

inefficient and unfair to apply the statutes of repose without tolling because that

would: (1) encourage “protective lawsuits” following the filing of class actions,

and (2) make the right to pursue individual claims “meaningless” in cases where a

class is not certified until very late in the litigation. (JA 0025-26 nn.18-19.)

Neither policy argument is persuasive, and neither overcomes the dispositive effect

of the statutes of repose imposed by Congress.

A. Applying The Statute Of Repose Is Not Inefficient

Applying the statute of repose as written will not overwhelm courts

with a needless multiplicity of litigation. Rather, allowing opt-out plaintiffs to wait

more than five years to file their individual complaints would create waste and

judicial inefficiency.

First, the “needless” court filings discussed in American Pipe

stemmed from a concern that absent class members who wish to remain in the

class would file protective lawsuits because they “fear[] that class certification may

be denied.” Crown, Cork, 462 U.S. at 350-51. By contrast, individual complaints

by litigants who wish to opt out are not “needless,” but necessary whether or not a


42

class is certified. Earlier filing of claims like those of Plaintiffs here will not

increase the judicial caseload; “the only difference is when those cases show up on

the dockets.” State Farm Mut. Auto. Ins. Co. v. Boellstorff, 540 F.3d 1223, 1233

(10th Cir. 2008) (emphasis in original).

Second, earlier filing of copycat complaints by institutional investors

who opt out of securities litigation would not create a significant administrative

burden for the courts. See IndyMac, 721 F.3d at 109 (“Given the sophisticated,

well-counseled litigants involved in securities fraud class actions,” refusing to toll

the statute of repose is unlikely to “burden the courts and disrupt the functioning of

class action litigation.”). District courts have many tools at their disposal to

manage litigation efficiently, such as by consolidating or coordinating individual

cases with parallel class actions. See, e.g., Instituto De Prevision Militar v. Merrill

Lynch, 546 F.3d 1340, 1346-47 (11th Cir. 2008) (individual action consolidated

with class action). Among other things, such procedures include staying individual

actions pending resolution of the class proceeding; encouraging agreements not to

re-brief motions decided in the main class action (subject to preservation for

appeal); coordinating discovery through shared document productions and

depositions; and conducting joint trials on common issues. See, e.g., MANUAL FOR

COMPLEX LITIGATION (FOURTH) § 31.6 (2004) (recommending procedures to

“avoid duplicative discovery in multiple litigation,” including coordinating


43

discovery plans, using a common document depository, sharing interrogatories,

and cross-noticing depositions of witnesses for use in all cases); In re Petrobras

Sec. Litig., No. 15-cv-00093, ECF No. 27, at 1 (S.D.N.Y. Nov. 2, 2015) (ordering

that “a single trial before a single jury will be held, combining the Class Action

with the Individual Actions.”).16

Third, and as these cases illustrate, Plaintiffs’ position would create

judicial inefficiency. Rather than proceeding in tandem with the Vytorin Class

Actions during the period from 2008 to 2013—when millions of document pages

were produced, dozens of witnesses were deposed, key legal issues were decided,

and trial preparations were completed—Plaintiffs now seek to bring four new

lawsuits that assert virtually identical claims. If Plaintiffs had filed these cases

earlier, Judge Cavanaugh could have coordinated them in real time with the class

action discovery, motion practice, and trial preparations without imposing any

undue burden on the parties or the court. Instead, Plaintiffs’ proposed procedure

invites the prospect that a district judge will need to decide a new inventory of

motions in the opt-out cases, third-party witnesses may be required to submit to

16

See also Kuwait Inv. Office v. Am. Int’l Grp., Inc., No. 11-cv-8403, 2015 WL

5294784, at *15 (S.D.N.Y. Sept. 10, 2015) (case management orders provided

that (1) opt-out actions were stayed pending resolution of class certification and

preliminary approval of settlement in class action, (2) defendants in opt-out

actions were restricted from moving to dismiss on grounds rejected in the class

action, and (3) parties in opt-out actions agreed to be bound by all discovery

orders and protocols in the class action).


44

further depositions or trial preparation long after memories have faded and after

the point at which they and the individual defendants should be able to move on

with their lives, and multiple juries might have to hear duplicative evidence that

could have been presented in a single trial years earlier.

When one compares the relative burdens of coordinated versus

seriatim litigation of identical claims, it is clear that the cost of coordinated

litigation is slight (including to Plaintiffs, who are institutional investors with

financial means and access to counsel), while the cost of seriatim litigation is

substantial. Thus, contrary to Plaintiffs’ assurance that tolling the repose period

will lead to greater efficiencies, this practice would encourage “precisely the

multiplicity of suits and waste of judicial resources which the American Pipe court

wanted to avoid.” Note, Statutes of Limitations and Opting Out of Class Actions,

81 MICH. L. REV. 399, 428-31 (1982) (Opt-out litigation entails “a second trial on

essentially the same facts and issues with all the inefficiencies and inconsistencies

avoided by a class suit.”)

Last, if Plaintiffs had brought their cases on a timely basis,

Defendants could have folded them into the class action resolution and factored

these claims into the amounts paid to the class. Permitting plaintiffs to wait in the

wings without surfacing until after the repose period has run—and after a class

settlement has been reached—would frustrate the ability of defendants to negotiate


45

global peace and make class action settlements more difficult, all to the detriment

of class members and the judicial system itself. See generally Kincade v. Gen.

Tire & Rubber Co., 635 F.2d 501, 507 (5th Cir. 1981) (noting that the judicial

system has an overriding public interest in favor of settlement, particularly in class

action suits, and that uncertain future liabilities to opt-out plaintiffs may discourage

defendants from agreeing to class action settlements in the first place).17

B. Applying The Statute Of Repose Is Not Unfair

Finally, applying the statute of repose as written is not unfair, and

would not render the right to opt out “meaningless.” Plaintiffs received notice and

an opportunity to opt out, which they exercised. The right to opt out means that

Plaintiffs cannot be bound by the judgment in the class action; it does not mean

that they have a viable individual claim. See, e.g., Mayfield v. Barr, 985 F.2d

1090, 1092 (D.C. Cir. 1993) (opting out says nothing about “the merits of the[]

individual claims, which remain to be tried”).

17

See also Premier Elec. Constr. Co. v. Nat’l. Elec. Contractors Assoc., Inc., 814 F.2d 358, 366 (7th Cir. 1987) (“The more attractive it is to opt out . . . the fewer settlements there will be, the less the settlements will produce for the class, and the more cases courts must adjudicate. This is not judicial economy at work!”); Mark W. Friedman, Constrained Individualism In Group Litigation: Requiring Class Members To Make A Good Cause Showing Before Opting Out Of A Federal Class Action, 100 YALE L.J. 745, 755 (1990) (Each additional opt out “presents the risk of further litigation, or at least of heightened transaction costs in arriving at so many bilateral settlement agreements, exactly the situation which the defendant sought to avoid” by settling with the class.).


46

Nor does fairness require that issuers, shareholders, and employees

remain subject to indefinite lingering liabilities in order to allow sophisticated

entities with experienced counsel to sit on the sidelines for more than five years

and hold out for a premium to the class settlement. Such tactical behavior is

decidedly unfair. Indeed, a “‘no risk, wait-and-see’” approach to opting out after

the class settlement18

implicates the concern about abusive “one-way intervention”

that the 1966 amendments to Rule 23 sought to avoid. “A recurrent source of

abuse under the former Rule” lay in the potential for absent class members to wait

until late in the class action before deciding whether participation would be

“favorable to their interests.” American Pipe, 414 U.S. at 546-47. If developments

in the class action became unfavorable, absent putative class members could

simply exclude themselves from the class without being bound by the judgment.

The drafters of the 1966 amendments deemed it “unfair to allow members of a

class to benefit from a favorable judgment without subjecting themselves to the

binding effect of an unfavorable one.” Id. at 547. This aptly describes the one-

way option that Plaintiffs in these cases seek to exercise.

18

See Wendy Gerwick Couture, Class-Action Tolling, Federal Common Law, and Securities Statutes of Repose, 46 LOY. U. CHI. L.J. 525, 544-45 (2015) (quoting Bernstein Litowitz attorneys, Blair A. Nicholas & Ian D. Berg, Why Institutional Investors Opt-Out of Securities Fraud Class Actions and Pursue Direct Individual Actions, PRACTISING L. INST. at 2, 6 (Oct. 15, 2009)).


47

In all events, where—as here—a statutory time-bar is unambiguous,

judicial tolling cannot be used to undermine the legislative intent based on notions

of fairness, efficiency, or public policy. If Plaintiffs believe that five years from

the date of the last alleged violation is too short a period of time to file suit without

resort to judicial tolling, that argument is more appropriately addressed to

Congress—not to this Court. See, e.g., Pinter v. Dahl, 486 U.S. 622, 653 (1988)

(“‘The ultimate question is one of congressional intent, not one of whether this

Court thinks it can improve upon the statutory scheme that Congress enacted into

law.’”).19

Accordingly, neither policy argument cited by the District Court can

override the five-year statutes of repose that bar Plaintiffs’ federal securities claims

in these cases. Those claims should have been dismissed with prejudice.

19

In fact, Congress recently lengthened the statute of repose at issue here from

three years to five years. See Sarbanes-Oxley Act of 2002, Pub. L. No. 107-

204, § 804(a), 116 Stat. 745, 801 (2002) (codified at 28 U.S.C. § 1658(b)(2)).


48

CONCLUSION

Defendants-Appellants respectfully request that the Court reverse the

District Court’s August 26, 2015 Order denying their motions to dismiss Plaintiffs’

federal securities claims.

Dated: April 6, 2016

Respectfully submitted,

PAUL, WEISS, RIFKIND,

WHARTON & GARRISON LLP

By: /s/ Daniel J. Kramer

Daniel J. Kramer

Theodore V. Wells, Jr.

Charles E. Davidow

Daniel J. Leffell

Daniel J. Juceam

1285 Avenue of the Americas

New York, New York 10019-6064

[email protected]

(212) 373-3000

TOMPKINS, MCGUIRE,

WACHENFELD & BARRY LLP

William H. Trousdale

Brian M. English

3 Becker Farm Road, Fourth Floor

Roseland, New Jersey 07068-1726

[email protected]

[email protected]

(973) 622-3000

Attorneys for Defendants-Appellants


CERTIFICATE OF COMPLIANCE WITH FEDERAL RULE

OF APPELLATE PROCEDURE 32(a)(7)(B)

The undersigned counsel for Defendants-Appellants certifies that this

brief complies with the type-volume limitation set forth in Federal Rule of

Appellate Procedure 32(a)(7)(B) because it contains 11,760 words, excluding the

parts of the brief exempted by Federal Rule of Appellate Procedure

32(a)(7)(B)(iii). The brief also complies with the typeface requirements of Federal

Rule of Appellate Procedure 32(a)(5) and the type-style requirements of Federal

Rule of Appellate Procedure 32(a)(6) because it has been prepared in a

proportionally spaced typeface, 14-point Times New Roman font, using Microsoft

Word 2010.

In preparing this certificate, I relied on the word count program in

Microsoft Word 2010.


/s/ Daniel J. Kramer

Daniel J. Kramer


CERTIFICATE OF COMPLIANCE WITH THIRD CIRCUIT

LOCAL APPELLATE RULE 31.1(c)

The undersigned counsel for Defendants-Appellants certifies that the

text of the electronic version of this brief filed on the CM/ECF system is identical

to the text of the paper copies that were sent by Federal Express overnight delivery

to the Clerk of the Court on April 6, 2016.

The undersigned counsel further certifies that a virus detection

program has been run on the file using Symantec Endpoint Protection, Version

12.1.4013.4013, and that no virus was detected by that program.



Daniel J. Kramer


CERTIFICATE OF BAR MEMBERSHIP PURSUANT TO

THIRD CIRCUIT LOCAL APPELLATE RULE 46.1(e)

The undersigned counsel for Defendants-Appellants certifies that he is

a member in good standing of the bar of this Court.



Daniel J. Kramer


CERTIFICATE OF SERVICE

I, Daniel J. Kramer, Esq., certify that on April 6, 2016, I caused a true

and correct copy of the foregoing Brief of Defendants-Appellants to be served by

hand delivery, by filing on the CM/ECF system, and by electronic mail to the

following counsel of record for Plaintiffs-Appellees:

KIRBY MCINERNEY LLP

Ira M. Press

Daniel Hume

Meghan Summers

Karina Kosharskyy

825 Third Avenue, 16th Floor

New York, NY 10022



Daniel J. Kramer


Documents

16-1364; 16-1365; 16-1366; 16-1367 - blogs.reuters.comblogs.reuters.com/alison-frankel/files/2016/05/northsoundvmerck...16-1364; 16-1365; 16-1366; 16-1367 United States Court Of Appeals