Merck & Co. v. Reynolds

2010-04-27

Headline: Investors’ securities fraud suit held timely as Court limits two-year filing clock, ruling it begins when investors actually or reasonably would have discovered the facts, including intent to deceive, affecting many fraud claims.

Holding: In this securities-fraud case, the Court held the two-year limitations period begins when a plaintiff actually discovers, or when a reasonably diligent plaintiff would have discovered, the facts constituting the violation, including scienter.

Real World Impact:

Clarifies when securities-fraud two-year deadline begins, affecting investor lawsuits.
Requires discovery of intent to deceive before the two-year clock starts.
Maintains a five-year absolute limit that prevents extremely old claims.

Topics: securities fraud, statute of limitations, pharmaceutical safety, investor lawsuits

Summary

Background

A group of investors sued Merck, saying the company misrepresented heart-attack risks from its pain drug Vioxx and so caused investor losses. Important events included a March 2000 clinical study (VIGOR) that showed more cardiac events for Vioxx, public debate and press reports, and an FDA warning letter in September 2001. The investors filed their fraud complaint on November 6, 2003. The District Court dismissed it as too late; the Third Circuit reversed, and the case reached the Supreme Court.

Reasoning

The key question was when the two-year deadline to file a private securities-fraud suit begins. The Court said the clock starts either when investors actually discovered the facts that make up the violation or when a reasonably diligent investor would have discovered them—whichever comes first. Importantly, the Court said those “facts” include scienter, meaning a defendant’s intent to deceive. The Court rejected the idea that mere “inquiry notice” (a signal to investigate) always starts the clock.

Real world impact

The ruling affects how quickly investors must sue after suspecting fraud: they must do so within two years of actual or constructive discovery of the facts, including any evidence of intent. At the same time a separate five-year absolute limit still bars very old claims. The Court affirmed the Third Circuit here, holding the investors’ complaint timely; this decision addresses timing, not whether fraud actually occurred.

Dissents or concurrances

Two Justices wrote separate opinions. Justice Stevens agreed the suit was timely but would reserve a broader rule question. Justice Scalia (joined by Justice Thomas) also agreed the case was timely but argued the statute requires actual discovery rather than constructive discovery.