WASHINGTON (AP) – A unanimous Supreme Court said investors who lost millions betting on the blockbuster drug Vioxx can sue Merck & Co. over whether the pharmaceutical giant provided enough information about the painkiller’s risks before it was pulled from the market.
The high court agreed with a federal appeals court’s decision to allow a class-action securities lawsuit. The suit was over whether the drugmaker provided adequate information about the drug’s risks before its withdrawal.
The Whitehouse Station, N.J.-based company pulled the drug on Sept. 30, 2004, because it doubled the risks of heart attack, stroke and death. Shareholders lost a combined $28 billion when Merck stock plunged overnight after Vioxx was pulled from the market.
The class-action lawsuit will now move forward in federal court in New Jersey.
“Merck is disappointed in today’s decision, but believes that the allegations in the complaint are unfounded and will continue to defend itself vigorously,” said Bruce Kuhlik, the drugmaker’s executive vice president and general counsel. “The company has already made a motion to dismiss the operative complaint on numerous other grounds, and will renew that motion in the district court.”
Investors have two years after they discover the facts that constitute the violation to sue a company accused of defrauding investors. Merck argued that the two-year clock began when the first hint of Vioxx trouble was made public in September 2001; investors disagreed.
Justice Stephen Breyer, writing for the court, agreed with the investors. “The plaintiff’s suit is timely,” he said.
The clock only begins “when the plaintiffs did in fact discover, or when a reasonably diligent plaintiff would have discovered ‘the facts constituting the violation’ – whichever comes first,” Breyer said. “We also hold that the ‘facts constituting the violation’ include the fact of scienter, ‘a mental state embracing intent to deceive, manipulate or defraud.'”
Fred Isquith, a lawyer for the investors, said the court’s ruling will make it easier for shareholders to seek to hold companies’ accountable for allegations of securities fraud.
“The unanimous verdict of the Supreme Court recognizes that a defrauded investor need not bring a lawsuit seeking compensation until there is information available that points to the fraudulent behavior of the corporation and its senior management that misinformed the markets,” Isquith said.
After it pulled Vioxx from the market, Merck was sued by shareholders, patients and survivors claiming Vioxx caused heart attacks and strokes, and from insurance plans seeking reimbursement for their costs for covering Vioxx prescriptions.
Merck says the investors should have known from public information that there could be problems with the drug because the regulatory Food and Drug Administration had issued warnings to Merck about Vioxx risks late in September 2001.
A federal judge agreed and dismissed the November 2003 lawsuit, ruling it was filed after the two-year statute of limitations expired.
But the Philadelphia-based 3rd U.S. Circuit Court of Appeals reversed that decision, allowing the many shareholder lawsuits, now consolidated in federal court, to proceed.
The appeals court said the investors could not have known more than two years ahead of time of the possible wrongdoing.
Merck has not proved otherwise, said Justice Antonin Scalia in a separate opinion. “Merck has not shown that respondents actually discovered scienter more than two years before bringing suit,” said Scalia, who was joined in his separate opinion by Justice Clarence Thomas.
Merck is the world’s second-biggest drugmaker by sales, with roughly $40 billion in annual revenue since it acquired Schering-Plough Corp. for $41 billion last November. It is also the maker of Singulair for asthma and allergies, Vytorin and Zetia for cholesterol problems, and diabetes pills Januvia and Janumet.
In a second case decided Tuesday, the court handed business interests a victory by making it harder for consumers to join forces in arbitration proceedings with businesses. The justices voted 5-3, with conservatives in the majority in an ideologically split decision, to throw out an appeals court ruling that allowed class arbitration to proceed in a dispute between shipping companies and some of their customers.
Businesses favor arbitration, and often compel its use, as a means of resolving disputes over more costly and time-consuming lawsuits. Consumer groups argued that class arbitrations often are the only practical way to hold corporations accountable when consumers can’t get into court.
The arbitration case is Stolt-Nielsen S.A. v. Animalfeeds International Corp., 08-1198, and the Vioxx case is Merck v. Reynolds, 08-905.
Date: April 27, 2010
Source: Associated Press