Merck & Co. v. Reynolds
Headline: Investors’ Vioxx lawsuit allowed to proceed as Court says two‑year fraud clock starts only after actual or reasonably diligent discovery of facts, including company intent, keeping many suits viable longer.
Holding: The Court held that the two‑year limitation for securities‑fraud claims begins when the investor actually discovers, or a reasonably diligent investor would have discovered, the facts constituting the violation, including intent to deceive.
- Requires discovery of intent before the two‑year fraud clock starts.
- Allows some investor fraud suits to proceed if intent was not discoverable earlier.
- Keeps a five‑year absolute bar to prevent very old claims.
Summary
Background
A group of investors sued a drug company after its pain medicine, Vioxx, was linked to heart risks. Public reports, a March 2000 study, and an FDA warning in September 2001 raised questions about Vioxx. The investors filed a securities‑fraud complaint on November 6, 2003; the key legal issue was whether that complaint was filed within two years of when they had “discovered” the facts that made the fraud claim.
Reasoning
The Court interpreted the two‑year rule to mean the clock starts when the investor actually discovers the facts, or when a reasonably diligent investor would have discovered them—whichever happens first. Crucially, the Court said those “facts constituting the violation” include evidence of the company’s intent to deceive (intent is a factual element). The Court rejected the idea that merely being put on notice to investigate (called “inquiry notice” or “storm warnings”) automatically starts the clock before intent is discovered.
Real world impact
Applying that rule, the Court affirmed the lower court that the investors’ complaint was timely because pre‑November 2001 events did not reveal facts showing the company’s intent to mislead. Going forward, plaintiffs cannot be time‑barred unless they (or a reasonably diligent investor) had discovered intent‑related facts; defendants still get full repose after five years.
Dissents or concurrances
Some Justices wrote separately. Justice Stevens largely agreed with the outcome but reserved a narrower question. Justice Scalia agreed the suit was timely but argued the two‑year clock should require actual discovery only, not constructive discovery.
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