Supreme Court hears arguments in False Claims Act, Vioxx fraud cases

[JURIST] The US Supreme Court [official website; JURIST news archive] heard oral arguments [day call, PDF; merit briefs] Monday in two cases. In Graham County Soil & Water Conservation Dist. v. United States ex rel. Wilson [oral arguments transcript, PDF; JURIST report], the Court heard arguments on the scope of the public disclosure jurisdictional bar [31 USC § 3730(e)(4)(A) text] of the False Claims Act, to determine if the Act allows federal jurisdiction in suits based on state or local government audits and investigations. The suit arose out of public record documents that detailed a failure to obtain bids for the clean-up and reconstruction of storm-damaged portions of North Carolina as well as a potential conflict of interest and whether or not these were publicly disclosed as per the Act. The petitioners claim that the US Court of Appeals for the Fourth Circuit erred in concluding [opinion, PDF] that a state audit does not constitute an administrative report, audit, or investigation under the Act. Counsel for the petitioners argued that the appeals court's "construction of the statute would have a devastating effect upon States, local governments, and the Federal fisc [sic]." Counsel for the respondent argued that "[t]he decision of the Fourth Circuit is correct because the text of the False Claims Act compels the result." Counsel for the US argued as amicus curiae supporting the respondent.

In Merck & Co. v. Reynolds [oral arguments transcript, PDF; JURIST report], the Court heard arguments on when the statute of limitations begins to run in a securities fraud case under the "inquiry notice" standard. Investors brought a class action suit against the drug maker Merck & Co. [corporate website] in November 2003, alleging that it had deliberately concealed information about the safety record of its painkiller Vioxx [JURIST news archive]. The case was dismissed by US District Court Judge Stanley Chester in April 2007 after he determined that investors were on "inquiry notice" of the alleged fraud in September 2001 when the Food and Drug Administration (FDA) [official website] released a warning letter [text, PDF] about the painkiller. The US Court of Appeals for the Third Circuit reinstated the case [opinion, PDF] in September 2008, finding that Chester had "acted prematurely in finding as a matter of law that [the investors] were on inquiry notice of the alleged fraud." Counsel for petitioners argued:

The statute of limitations for private securities fraud claims incorporates the equitable principle known as the discovery rule; that is, the principle that the limitations period begins to run from the discovery of the facts constituting the violation. Under the discovery rule, a plaintiff who suspects the possibility that the defendant has engaged in wrongdoing is on inquiry notice and thereafter must exercise reasonable diligence in investigating his potential claim.

The court of appeals in this case erred at the first step.
Counsel for the respondents argued "[o]ur position is that Congress intended the word "discovery" in Section 1658 to have its normal and well-established meaning." Counsel for the US argued as amicus curiae supporting the respondents.

 

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