NORTH SOUND CAPITAL LLC; NORTH SOUND LEGACY INTERNATIONAL; NORTH SOUND LEGACY INSTITUTIONAL; UNITED FOOD COMMERCIAL WORKERS LOCAL 500 PENSION FUND; COLONIAL FIRST STATE INVESTMENTS LTD.; CFSIL-CFS WHOLESALE INDEXED GLOBAL SHARE FUND; CFSIL-COMMONWEALTH GLOBAL SHARES FUND 4; 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 SHARES FUND 2; CFSIL-CFS WHOLESALE ACADIAN GLOBAL EQUITY FUND; CFSIL-CFS WHOLESALE GLOBAL HEALTH & BIOTECHNOLOGY FUND; CFSIL-CFS WHOLESALE GLOBAL SHARE FUND, Appellants
MERCK & CO., INC. formerly known as SCHERING-PLOUGH CORPORATION; MERCK SCHERING-PLOUGH PHARMACEUTICALS; MSP DISTRIBUTION SERVICES (C) LLC.; MSP SINGAPORE COMPANY LLC; FRED HASSAN; CARRIE S. COX GIC PRIVATE LIMITED, Appellant
MERCK & CO., INC. formerly known as SCHERINGPLOUGH CORPORATION; MERCK/SCHERING PLOUGH PHARMACEUTICALS; MSP DISTRIBUTION SERVICES (C) LLC; MSP SINGAPORE COMPANY LLC; FRED HASSAN; CARRIE S. COX GIC PRIVATE LIMITED, Appellant
MERCK & CO., INC.; MERCK/SCHERING-PLOUGH PHARMACEUTICALS; MSP DISTRIBUTION SERVICES (C) LLC; MSP SINGAPORE COMPANY LLC; RICHARD T. CLARK; DEEPAK KHANNA NORTH SOUND CAPITAL LLC; NORTH SOUND LEGACY INTERNATIONAL; NORTH SOUND LEGACY INSTITUTIONAL; UNITED FOOD COMMERCIAL WORKERS LOCAL 1500 PENSION FUND, Appellants
MERCK & CO., INC.; MERCK/SCHERING-PLOUGH PHARMACEUTICALS; MSP DISTRIBUTION SERVICES (C) LLC; MSP SINGAPORE COMPANY LLC; RICHARD T. CLARK; DEEPAK KHANNA
Argued: March 20, 2019
Appeal from the United States District Court for the District
of New Jersey (D.N.J. No. 3-13-cv-07240), (D.N.J. No.
3-13-cv-07241), (D.N.J. No. 3-14-cv-00241), (D.N.J. No.
Hume Karina Kosharskyy Ira M. Press Meghan J. Summers Kirby
McInerney Counsel for Appellants.
J. Juceam Daniel J. Kramer [ARGUED] Theodore V. Wells, Jr.
Weiss Rifkind Wharton & Garrison Counsel for Appellees.
Before: SHWARTZ, KRAUSE, and BIBAS, Circuit Judges
KRAUSE, CIRCUIT JUDGE.
these consolidated appeals, we consider whether the
Securities Litigation Uniform Standards Act (SLUSA) prohibits
investors from bringing individual actions under state law if
they exercise their constitutionally protected right to opt
out of a class action. Hewing to SLUSA's text, we
conclude that these opt-out suits and the class actions from
which these plaintiffs excluded themselves were not
"joined, consolidated, or otherwise proceed[ing] as a
single action for any purpose." 15 U.S.C. §
78bb(f)(5)(B)(ii)(II). Accordingly, we will reverse the
District Court's dismissal of these suits and remand for
long-running dispute concerns allegations that two
pharmaceutical manufacturers, Merck and Schering-Plough,
stalled the release of damaging clinical trial results for
their blockbuster drugs Vytorin and Zetia for years, tried to
change the endpoint of the study to produce more favorable
results, and then concealed their role in pushing for the
change. During this time, Merck and
Schering-Plough allegedly made numerous statements touting
the efficacy and commercial viability of Vytorin and Zetia.
Plaintiffs allege that the delay allowed Schering-Plough to
raise $4.08 billion through a public offering in August 2007,
which the company then used to purchase another
pharmaceutical company that would lessen its reliance on
Vytorin and Zetia.
several critical press reports and an incipient congressional
investigation, Merck and Schering-Plough finally released the
clinical trial results in January and March 2008. The data
showed that "[i]n no subgroup, in no segment, was there
any added benefit" from taking Vytorin, raising the
possibility that the active-ingredient ezetimibe amounted to
an "expensive placebo." App. 165-66. Based on the
results, the New England Journal of Medicine, along with
several leading cardiologists, recommended that doctors
prescribe Vytorin and Zetia only if other classes of drugs
failed to control a patient's cholesterol.
devastating results for these popular anti-cholesterol drugs
allegedly caused Merck's and Schering-Plough's stock
price to plummet. Between December 11, 2007 and March 31,
2008, Schering-Plough's common-stock price declined 52%,
eliminating $23.63 billion in market capitalization. And
Merck's stock price dropped 38%, amounting to around a
$48 billion loss in market capitalization.
Investors File Putative Class Actions Against Merck and
with enormous losses, investors soon filed separate putative
class actions in the District of New Jersey against Merck and
Schering-Plough, alleging each made numerous material
misrepresentations about Vytorin and Zetia. Over a year
later, in September 2009, the District Court denied
defendants' motions to dismiss under the Private
Securities Litigation Reform Act's (PSLRA) heightened
pleading standard. Three years after that, the District Court
denied defendants' motion for summary judgment and
granted class certification.
District Court then directed-as Rule 23(c)(2) requires-that
investors receive notice of their right to opt out of the
class actions. The court-approved notices provided investors
with 45 days (that is, until March 1, 2013) to exclude
themselves from the class actions. If they did so, the
notices assured them, "you will not be bound by any
judgment in this Action" and "will retain any right
you have to individually pursue any legal rights that you
have against any Defendants." In re Merck & Co.,
Inc. Vytorin/ZETIA Sec. Litig., No. 2:08-cv-02177, ECF
No. 266-1 at 11 (Dec. 19, 2012); In re Schering-Plough
Corp. / ENHANCE Sec. Litig., No. 2:08-cv-00397, ECF No.
331-1 at 11 (Dec. 19, 2012).
the opt-out period ended, the District Court approved the
settlement agreements the class-action plaintiffs reached
with Merck and Schering-Plough. At the parties' request,
the District Court declined to provide class members with a
second opportunity to opt out, but did offer opt-out
investors 45 days to join the class actions and share in the
recovery. In preliminarily approving the settlement
agreements, the District Court reiterated that opt-outs
"shall not be bound by the terms of the Settlement, the
Stipulation, or any other orders or judgments in the
Action." In re Schering-Plough Corp. / ENHANCE Sec.
Litig., Case No. 2:08-cv-00397, ECF No. 421 ¶ 11
(June 7, 2013); In re Merck & Co., Inc. Vytorin/ZETIA
Sec. Litig., Case No. 2:08-cv-02177, ECF 330 ¶ 11
(June 7, 2013). In October 2013, the District Court gave
final approval to the class-action settlements and entered
separate final judgments dismissing class members' claims
Opt-Out Investors Then File These Individual
sixteen plaintiffs in these consolidated appeals fell within
the class definition alleged and eventually certified in the
class actions against Merck and Schering-Plough. But they
were not named plaintiffs, and neither they nor their counsel
participated in the class-action proceedings. After the
District Court certified the class actions, they opted out on
the last day, March 1, 2013, and declined to opt in to
participate in the settlement agreements.
November 2013 and January 2014, after the District Court
entered the final judgments in the class-action suits, these
opt-out investors ("Plaintiffs") brought their own
actions against Merck and Schering-Plough, which had since
merged. Their complaints track, sometimes verbatim, those
filed in the class actions, except they added a fraud claim
under New Jersey common law. Along with their complaints,
Plaintiffs identified the class-action suits as
"related" on the civil cover sheet and in a
certification, as required by that District's Local
Rules. See D.N.J. L. Civ. R. 5.1(e), 11.2, 40.1(c).
In briefing papers before the District Court, Plaintiffs
asserted in connection with an unrelated argument that
"Defendants have already engaged in lengthy and
expensive discovery in the class cases," so their suits
would not burden defendants. App. 966. But nothing suggests
that Plaintiffs coordinated their lawsuits with the class
actions or received access to confidential materials
their first motion to dismiss, Merck did not suggest that
SLUSA precluded Plaintiffs' claims, even though that
posed a threshold jurisdictional issue. See In re Lord
Abbett Mut. Funds Fee Litig., 553 F.3d 248, 254 (3d Cir.
2009). Instead, Merck contended that their federal claims
were barred by the Securities Exchange Act's statute of
repose and that their state-law claims failed to plausibly
allege actual reliance. The District Court rejected both
arguments, but in an interlocutory appeal, we reversed the
District Court's allowance of Plaintiffs' federal
claims after the Supreme Court held that American
Pipe tolling does not extend to statutes of repose.
See N. Sound Capital LLC v. Merck & Co. Inc.,
702 Fed.Appx. 75, 81 (3d Cir. 2017); see also Cal. Pub.
Emps.' Ret. Sys. v. ANZ Sec., Inc., 137 S.Ct. 2042
(2017). Our decision left Plaintiffs with only their
state-law fraud claims.
remand, Merck again moved for dismissal of Plaintiffs'
state-law claims, arguing for the first time that SLUSA
precluded them because the class actions and the opt-out
suits were "joined, consolidated, or otherwise
proceed[ing] as a single action for any purpose." 15
U.S.C. § 78bb(f)(5)(B)(ii)(II). In its opinion, the District
Court recognized that Merck's argument "tests the
limits of SLUSA's preclusive scope" and "it
does not appear that any prior decision has addressed this
issue." N. Sound Capital LLC v. Merck &
Co., 314 F.Supp.3d 589, 601, 615 (D.N.J. 2018).
Nevertheless, the District Court concluded that
Plaintiffs' claims were barred under SLUSA because the
"Individual Actions and the Vytorin Class Actions have
proceeded as a single action." Id. at 619.
Considering the statutory text, the District Court inferred
that because Congress did not explicitly exempt
opt-out suits from SLUSA, it necessarily "envisioned the
aggregation of opt-out suits with related class actions"
under SLUSA's mass-action provision. Id. at 605,
611. The District Court also concluded that SLUSA's
legislative history required it to "construe the
definition of a 'covered class action' broadly."
Id. at 606 (citation omitted). And it relied on
several district court decisions that, building upon each
other, have espoused increasingly capacious interpretations
of the mass-action provision. Id. at 606-19.
wake of the Great Depression, Congress sought to "root
out all manner of fraud" in securities by launching its
"first experiment in federal regulation of the
securities industry"-the Securities Act of 1933 and the
Securities Exchange Act of 1934. Lorenzo v. SEC, 139
S.Ct. 1094, 1102, 1104 (2019) (quoting SEC v. Capital
Gains Research Bureau, Inc., 375 U.S. 180, 198 (1963)).
At the same time, Congress left undisturbed private remedies
under state common law and so-called "blue-sky"
laws. See Edgar v. MITE Corp., 457 U.S. 624, 641
(1982); 15 U.S.C. §§ 77p(a), 78bb(a). This dual
system of remedies has persisted since then, allowing
aggrieved investors generally to seek redress under both
state and federal law.
years later, Congress revisited this dual system of remedies
in the PSLRA, primarily to curb "perceived abuses of the
class-action vehicle in litigation involving nationally
traded securities." Cyan, Inc. v. Beaver Cty. Emps.
Ret. Fund, 138 S.Ct. 1061, 1066 (2018) (quoting
Merrill Lynch, Pierce, Fenner & Smith Inc. v.
Dabit, 547 U.S. 71, 81 (2006)). Rather than proscribing
private suits under the securities laws outright, the PSLRA
includes a series of mechanisms to dismiss unsubstantiated
suits without discovery, see 15 U.S.C. §
78u-4(b), impose sanctions for frivolous actions, see
id. § 78u-4(c), create a safe-harbor for certain
forward-looking statements, see id. § 78u-5,
and ensure that responsible stakeholders maintain control
over class-action litigation, see id. §
78u-4(a)(3). These provisions, however, govern only
securities claims brought under federal law in federal court.
15 U.S.C. §§ 77z-1(a)(1), 78u-4(a)(1).
dissatisfied with the PSLRA, some entrepreneurial plaintiffs
began filing putative class actions in state court to evade
the Act's strictures. Merrill Lynch, 547 U.S. at
82. As class actions alleging only state-law claims, these
suits generally could not be removed to federal court under
the then-prevailing diversity-jurisdiction rules. See
Zahn v. Int'l Paper Co., 414 U.S. 291, 301 (1973),
superseded in part by 28 U.S.C. § 1332(d). To
curtail this unprecedented shift of class-action securities
litigation to state courts, Congress enacted SLUSA.
Merrill Lynch, 547 U.S. at 82. But, yet
again, Congress chose a measured approach. SLUSA "does
not deny any individual plaintiff, or indeed any group of
fewer than 50 plaintiffs, the right to enforce any state-law
cause of action that may exist." Id. at 87.
Instead, the SLUSA simply precludes (with some exceptions)
investors from litigating their state-law claims alleging
securities fraud through a "covered class action."
See 15 U.S.C. § 78bb(f)(1).
definition of a "covered class action" comprises
two parts. The first part, which all agree does not apply
here, encompasses any lawsuit that seeks to recover damages
for more than 50 persons or on a representational basis. 15
U.S.C. § 78bb(f)(5)(B)(i). The second part, which we
shall dub the "mass-action provision," covers
lawsuits that: (1) are "filed in or pending in the same
court"; (2) involve common legal or factual questions;
(3) seek damages for more than 50 persons; and (4) "are
joined, consolidated, or otherwise proceed as a single action
for any purpose." 15 U.S.C. § 78bb(f)(5)(B);
accord Instituto De Prevision Militar v. Merrill
Lynch, 546 F.3d 1340, 1346 (11th Cir. 2008).
the total number of investors in Plaintiffs' lawsuits
does not exceed fifty, SLUSA's mass-action provision does
not apply unless their individual opt-out lawsuits and the
settled class actions together satisfy the statutory
definition. On that front, Plaintiffs do not dispute that the
class actions and their individual lawsuits were both filed
in the District of New Jersey and involve substantially the
same facts. Thus, this appeal turns on the fourth prong of
the mass-action provision: whether the class actions and
these subsequent opt-out suits were "joined,
consolidated, or otherwise proceed[ed] as a single action for
any purpose." 15 U.S.C. § 78bb(f)(5)(B)(ii)(II).
opt-out plaintiffs insist that their individual actions do
not satisfy this "single-action" requirement
because they have never proceeded as a single action with the
class actions. They argue both that their suits postdated the
resolution of the class actions and that their suits were
never coordinated with the class actions. By contrast, Merck
interprets the single-action requirement to require a mere
"functional relationship" between two suits, an
amorphous standard so "broad and flexibl[e]" that
it would seemingly embrace every suit that happens to share
similar substantive allegations. Appellees' Br. 4.
conclude Merck's strained reading contravenes both the
plain text and underlying constitutional principles. Instead,
as we explain below, (A) some actual coordination is required
to constitute a single action, and (B) there was no such
coordination between Plaintiffs' opt-out suits and the
prior class actions.
The Single-Action Requirement Requires Some Actual
The Phrase "Join[der], Consolidat[ion], or Otherwise
Proceed[ing] as a Single Action" Plainly Demands
begin, as we must, with the mass-action provision's text.
See Ross v. Blake, 136 S.Ct. 1850, 1856 (2016). To
qualify as a mass action, the lawsuits must be "joined,
consolidated, or otherwise proceed as a single action for any
purpose." 15 U.S.C. § 78bb(f)(5)(B)(ii)(II). We
first consider the meaning of "joined" and
"consolidated" before turning to the phrase
"otherwise proceed as a single action."
the verbs "join" and "consolidate" share
very similar meanings. See Consolidation of actions,
Black's Law Dictionary 309 (1990) (cross-referencing
joinder). "Join" means "to combine or unite in
time, effort, action," Join, Black's Law
Dictionary 836 (1990), while "consolidate" means
"to unite or unify into one mass or body,"
Consolidate, Black's Law Dictionary 308 (1990).
When used to refer to the joinder or consolidation of
lawsuits, these words typically connote the "uniting
[of] several actions," sometimes for all purposes,
Consolidation of actions, Black's Law Dictionary
309 (1990), while other times just for pretrial purposes,
see Fed. R. Civ. P. 42(a); 9A Charles Alan Wright et
al., Fed. Prac. & Proc. § 2382 n.20 (3d ed.
2019). In federal court, the joinder or consolidation of
separate suits is governed by Federal Rule of Civil Procedure
42, which provides that a court may "join for
hearing or trial any or all matters at issue" in
separate lawsuits or "consolidate the
actions." Fed.R.Civ.P. 42(a) (emphasis added). In
describing this rule, the Supreme Court has used
"joinder" and "consolidation"
interchangeably and observed that joining or consolidating
cases results in the "merger" of "one or many
or all of the phases of the several actions." Hall
v. Hall, 138 S.Ct. 1118, 1125, 1130 (2018) (citation
these authorities instructive in ascertaining what Congress
meant by the phrase "otherwise proceed as a single
action for any purpose." 15 U.S.C. §
78bb(f)(5)(B)(ii)(II). Merck scrounges up a couple of
dictionary definitions defining "proceed" as
"to come forth from a source" or "to continue
after pause or interruption." Appellees' Br. 32
(quoting Proceed, Merriam-Webster's Dictionary
(2018)). But we are not persuaded that Congress meant the
word "proceed" in either sense: The "come
forth from a single source" meaning does not fit at all
because the provision neither uses the preposition
"from" nor does it identify any source from which
the lawsuits must arise. The "continue after pause or
interruption" definition comes closer to the meaning
here, but it too does not naturally relate to a "single
action," much less joinder or consolidation. Instead, we
conclude Congress intended the legal definition of
"proceed," which-consistent with the meaning of
joinder and consolidation in Black's Law Dictionary and
Rule 42(a)-means "to carry on a legal action or
process," Proceed, Webster's Third New
International Dictionary 1807 (1990) [hereinafter
Webster's Third Dictionary]; see also Proceed,
The American Heritage Dictionary 1444 (3d ed. 1992)
("[t]o institute and conduct legal action").
this definition of "proceed" in mind, we consider
what Congress meant by the broader phrase "otherwise
proceed as a single action for any purpose." 15 U.S.C.
§ 78bb(f)(5)(B)(ii)(II). The adjective
"single," when used in this statute to modify
"action," means "consisting of one as opposed
to or in contrast with many," while "action"
refers to a suit. Webster's Third Dictionary 21, 2123;
see also Single, American Heritage Dictionary 1684
(3d ed. 1992) ("[n]ot divided; unbroken"). By
qualifying "single action" with the prepositional
phrase "for any purpose," Congress clarified that
the lawsuits need not proceed together for all-or even
most-purposes; a group of lawsuits may satisfy the statutory
requirement even if a court contemplates separate trials,
judgments, or hearings. See Instituto De Prevision
Militar, 546 F.3d at 1347. In this respect, SLUSA
extends beyond the Class Action Fairness Act's
mass-action removal provision, which exempts all pretrial
coordination. 28 U.S.C. § 1332(d)(11)(B)(ii)(IV). But,
at a minimum, suits do not "proceed as a single
action" unless they are somehow combined for the joint
management of a common stage of the proceedings (such as
discovery) or the resolution of a common question of law or
corollary of our reading is that, as a general matter, cases
cannot "proceed as a single action" unless they
coincide for some period. If two cases never overlap, a court
cannot combine them for management of a common stage of the
proceedings or for resolution of a common question. Thus,
while we cannot rule out some extraordinary exception, we are
hard-pressed to imagine any scenario in which two cases that
never overlap could function as a single lawsuit on any
dimension, as the mass-action provision requires. To be
clear, we do not read the single action requirement to mean
that cases must be coextensive with one another but rather
that they be at least partially coordinated, which would seem
invariably to require that they coincide for some period.
See, e.g., In re Lehman Bros. Sec. & ERISA
Litig., 131 F.Supp.3d 241, 266-68 (S.D.N.Y. 2015)
(mass-action provision satisfied where two cases were
combined for discovery for some time, but one case was later
settled and dismissed).
common-sense interpretation draws further support from the
time-honored canon ejusdem generis, which teaches
that "where general words follow an enumeration of two
or more things," those successive words refer "only
to persons or things of the same general kind or class
specifically mentioned." Antonin Scalia & Bryan A.
Garner, Reading Law 199 (2012); see, e.g.,
Wash. State Dep't of Soc. & Health Servs. v.
Guardianship Estate of Keffeler, 537 U.S. 371, 384
(2003). For the canon to adhere, the preceding words in the
list must share a "common attribute." Ali v.
Fed. Bureau of Prisons, 552 U.S. 214, 225 (2008).
mass-action provision presents a textbook case for applying
ejusdem generis. The preceding verbs
"joined" and "consolidated" are nearly
synonymous when used to refer to the union of lawsuits, and
"otherwise" signals a commonality between those
preceding words and the phrase "proceed as a single
action." See Begay v. United States, 553 U.S.
137, 143-44 (2008), abrogated on other grounds by Johnson
v. United States, 135 S.Ct. 2551 (2015); id. at
151 (Scalia, J., concurring in judgment) (agreeing with the
majority that "by using the word 'otherwise' the
writer draws a substantive connection between two sets"
based on "whatever follows 'otherwise'");
Bd. of Ed. v. Harris, 444 U.S. 130, 143 (1979)
(accepting that a statute's use of "otherwise"
connotes a link with a preceding clause). The meaning of join
and consolidate therefore illustrates what Congress meant by
the phrase "otherwise proceed as a single action."
with these textual clues, Merck seizes on the mass-action
provision's use of "any." Although a
statute's use of the word "any" may favor a
broader reading, see, e.g., Smith v.
Berryhill, 139 S.Ct. 1765, 1774 (2019), its meaning
"necessarily depends on the statutory context,"
Nat'l Ass'n of Mfrs. v. Dep't of
Defense, 138 S.Ct. 617, 629 (2018). Or, as the Supreme
Court quipped in rejecting another strange interpretation of
SLUSA premised on the word "any," "we do not
read statutes in little bites." Kircher v. Putnam
Funds Tr., 547 U.S. 633, 643 (2006). Here,
"any" modifies "purpose"; it provides no
cause for reading the preceding phrase "proceed as a
single action" "completely out of the
statute." Nat'l Ass'n of Mfrs., 138
S.Ct. at 629. Nor does "any" preclude the
application of ejusdem generis. See, e.g.,
Circuit City Stores, Inc. v. Adams, 532 U.S. 105,
114 (2001) (applying the canon to the phrase "any other
class of workers engaged in . . ...