Loyola Consumer Law Review

Volume 9 | Issue 4 Article 4

1997 Without Causation, Fraud and Subsequent Loss are Not Adequate Grounds for Recovery Tom O'Connor

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Recommended Citation Tom O'Connor Without Causation, Fraud and Subsequent Loss are Not Adequate Grounds for Recovery, 9 Loy. Consumer L. Rev. 309 (1997). Available at: http://lawecommons.luc.edu/lclr/vol9/iss4/4

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Without Causation, Fraud and Subsequent Loss Are Not Adequate Grounds for Recovery

by Tom O'Connor

In Mark Law v. Medco Research September 1, 1992 should have a new drug was "on track." These Inc., 113 F.3d 781 (7th Cir. 1997), provided "storm warnings" to articles reported that: (1) Defen- Mark Law ("Plaintiffs") filed a class investors and satisfied the notice dants' supplier of pharmaceuticals, action suit for similarly situated requirement. These articles called Fujisawa, was suing the company investors in Medco Research Inc. Defendants an "overpriced hype which sold Fujisawa the production ("Defendants"), claiming Defen- job" whose stock was bought by facilities for Defendants' drug, and dants defrauded their investors. The "idiots." In reviewing this argu- (2) Fujisawa's production facility United States Court of Appeals for ment, the court noted that these had quality and regulatory problems the Seventh Circuit dismissed the articles were not given credence by in producing a number of its drugs. securities fraud case, holding that investors because the stock price of Defendants contended that these Plaintiffs had no case without proof Defendants' stock rose after each articles should have given Plaintiffs that securities losses were a result of article was published. Hence, the notice of fraud. In reviewing this fraud and not market forces. court reasoned that the articles had contention, the court concluded that not provided stockholders with investors had no reason to have Statute of Limitation notice, and the statute of limitations notice of fraud because there was no Defenses Rejected did not begin to run when the indication in these articles that articles were published. Defendants knew of the problems at Plaintiffs alleged that Defendants Second, in support of their statute Fujisawa at the time of Defendants' "on-track" made false or misleading announce- of limitations defense, Defendants announcement. ments in violation of § 10(b) of the contended that stockholders had The court concluded that none of Securities Exchange Act of 1934. notice of fraud earlier than they Defendants' three alternative Plaintiffs contended that Defendants claimed because during the early arguments proved that the statute of inappropriately encouraged inves- 1990's Defendants' stock was one of limitations had expired. Nonethe- tors to buy Defendants' stock when the most "shorted" stocks on the less, the court considered in dicta Defendants announced that the Food American Stock Exchange. Defen- whether the limitations period and Drug Administration was about dants argued that the "short selling" expired for Plaintiffs' claims based to approve its drug application. indicated that stockholders were on an alternative argument called Defendants responded that the concerned about the future of the equitable tolling. statute of limitations on Plaintiffs' stock. In reviewing this argument, fraud claim had run before the suit the appellate court reasoned that for Equitable Tolling Period was filed. The statute of limitations every stock which had been sold "Unnecessary" in securities fraud cases is one year short, there was a buyer who felt the from the time a plaintiff receives stock would do well. All that the The court considered whether the notice of fraud. Plaintiffs filed the "short selling" indicated, the court limitations period would have run instant suit on September 1, 1993, so explained, was a difference of by September 1, 1993, under an they must have received notice of opinion between investors, not equitable tolling theory if Plaintiffs the fraud before September 1, 1992, notice of possible fraud. had received notice of fraud before to fall within the limitations period. Third, in support of their statute September 1, 1992. The court Defendants made three alterna- of limitations defense, Defendants considered the relationship between tive arguments to show that their submitted a series of articles the time of discovery of fraud in a investors had received notice of published in August of 1992, four securities case and the doctrine of fraud. First, Defendants argued that months after Defendants had equitable tolling. In an earlier case, a series of articles published before announced that their application for the United States Supreme Court

1997 Loyola University Chicago School of Law * 309 held that equitable tolling was began to run when Plaintiffs should had not committed fraud, the court unnecessary in a securities fraud have known of fraud, not when they affirmed the trial court's dismissal of case because the limitations period actually became aware of it. The the case. The court reasoned that would not begin to run until a court concluded that since Defen- because competitors' stock prices plaintiff knew or should have known dants had not proved that the moved in a manner similar to that a fraud had been perpetrated. investors became aware of the fraud Defendants'stock, market forces In the present securities fraud before Plaintiffs claimed they had, rather than fraud caused the decline case, the Seventh Circuit found that Defendants had not proved their in Defendants' stock prices. the limitations period does not begin affirmative defense that the limita- Therfore, the court held that to run until a plaintiff knows both tions period had run. Plaintiffs had not met their burden that she has been misled and that of proving fraud. defendant intended to make a false Market, Not Fraud, Led to In conclusion, though the court statement. Once both of these Stock Losses dismissed Defendant's statute of requirements are met, the statute limitations defense, it agreed with begins to run. The court found this As an alternative defense, Defendant's market forces defense. interpretation to be consistent with Defendants produced a financial The court held that absent proof that the Supreme Court's holding that the expert's report which showed that the losses were not a result of equitable tolling period was unnec- the drop in Defendants' stock price market forces, Plaintiff's fraud claim essary in securities fraud cases. 'was consistent with the fluctuations could not be supported. The court determined that an of the entire stock market. Plaintiffs objective test should be used to did not respond to this defense, determine when the limitations leaving the court without a basis to period had begun to run in a fraud question the report. Because the case. Based on this analysis in the report indicated that the loss would present case, the statute would have have occurred even if Defendants

Limitations in Trademark Agreements Are Not Trade Restrictions

by Linda A. Kerns

In Clorox Co. v. Sterling mark agreement which limited the since 1945 and was federally Winthrop, Inc., 117 F.3d 50 (2d use of the PINE-SOL trademark registered in 1957. Cir. 1997), the owner of the PINE- neither restrained trade nor created a Defendants also develop and sell SOL trademark, the Clorox Com- monopoly. household cleaning products. pany ("Clorox") alleged that Clorox develops and sells Sterling purchased the LYSOL mark Sterling Winthrop, Inc. and Reckitt cleaning and disinfectant products in 1966 and sold it to the co- & Colman, Inc. ("Reckitt"), the for household use and has a thirty- defendant in this litigation in 1994. former and current owners of the seven percent share of the all- Reckitt currently has approximately LYSOL trademark violated the purpose household cleaning market. fifteen percent of the all-purpose Sherman Act. The United States In 1990, Clorox purchased PINE- household cleaning market. The Court of Appeals for the Second SOL, the oldest, best-selling pine- LYSOL name has had federal Circuit affirmed the judgment of the oil-based cleaner on the market. The trademark protection as a disinfec- district court, holding that a trade- PINE-SOL trademark has been used tant cleaner since 1906. LYSOL

310 * Loyola Consumer Law Reporter Volume 9, number 4