On October 17, 2014, in Schmidt v. Skolas, the US Court of Appeals for the Third Circuit held that it is premature to dismiss a complaint on statute of limitations grounds at the motion to dismiss stage where the allegations in the complaint do not facially show that the claims are time-barred (No. 13-3750 (3rd. Cir. Oct. 17, 2014)).

The plaintiff, Alan Schmidt, was a shareholder of Genaera Corporation (Genaera), a biotechnology company that dissolved in June 2009 and liquidated its assets. In April 2009, Genaera's board of directors first announced their intent to dissolve the company and, in May, submitted a proxy statement regarding the dissolution plan, which they filed with the Securities and Exchange Commission (SEC). In June, the shareholders approved the dissolution plan and Genaera's assets were transferred for sale to the Genaera Liquidating Trust, with defendant Argyce, LLC (Argyce) as liquidating trustee.

On June 8, 2012, Schmidt brought suit on behalf of himself and other former shareholders, against defendants including the Liquidating Trust; Argyce; Argyce's CEO, John Skolas; former Genaera officers and directors (D&O defendants); former major Genaera shareholders; and purchasers of certain Genaera assets. Schmidt claimed that the liquidating trustee and D&O defendants breached their fiduciary duties by disposing of promising drug technologies in tainted insider deals for far less than their true value. He also alleged that Genera's two largest shareholders aided and abetted this behavior. All the defendants except one moved to dismiss the complaint as untimely under the applicable two-year statute of limitations.

Schmidt acknowledged that he filed suit more than two years after the relevant assets were sold, but argued that the statute of limitations should have been tolled under Pennsylvania's discovery rule. He asserted that he could not have been aware of the nature or value of the sale until he later learned the details of the sale and subsequent events suggested to him that the assets were quite valuable. The district court rejected this argument, holding that Schmidt had all the information that he needed to file the suit at least two years earlier.

On appeal, Schmidt argued that:

The Third Circuit reversed. First, the court ruled that the district court improperly took notice of certain postings on the Liquidating Trust's website and press releases. Instead, the motion should have been decided based only on documents properly considered at the motion to dismiss stage, such as the complaint, SEC filings, and certain integral documents on which Schmidt relied in his complaint.

The court then addressed whether the discovery rule served to toll the statute of limitations. The discovery rule generally tolls the applicable statute of limitations until the point in time when the plaintiff knows or reasonably should know that he has been injured by the defendant's conduct. The court noted that while a motion to dismiss on statute of limitations grounds may be entertained, the court may not allocate the burden of invoking the discovery rule in a way that is inconsistent with the rule that a plaintiff is not required to plead facts sufficient to overcome an affirmative defense. In the context of the discovery rule, when the pleading does not reveal when the limitations period began to run, the statute of limitations cannot justify Federal Rule of Civil Procedure (FRCP) 12 dismissal. The court found that:

Accordingly, the court held it was premature to dismiss the complaint on statute of limitations grounds at the motion to dismiss stage because the allegations in the complaint did not facially show that the claims were time-barred.

Practitioners in the Third Circuit should note that plaintiffs will not be required to plead around an affirmative defense. In the context of the statute of limitations and discovery rule, if a pleading does not reveal when the limitations period began to run, the statute of limitations cannot justify FRCP 12 dismissal.