A complaint alleging “fraud, deceit, manipulation, or contrivance” under the Securities Exchange Act “may be brought not later than the earlier of * * * 2 years after the discovery of the facts constituting the violation or * * * 5 years after such violation.” 28 U.S.C. § 1658(b). On May 26, 2009, the Supreme Court granted certiorari in Merck & Co. v. Reynolds, No. 08-905, to decide what type of information is sufficient to trigger the limitations period on a claim of securities fraud under section 10(b) of the Act. Its decision will have direct implications for the recent wave of securities-fraud actions targeting Merck, the maker and distributor of the popular prescription pain medication Vioxx; it also will determine the extent of plaintiffs’ obligations to timely investigate and pursue potential claims of fraud in other areas.
Although there is broad agreement that the limitations period commences once an investor is placed on “inquiry notice” of its claim, the courts of appeals are not consistent in their interpretation of what constitutes “inquiry notice.” In the case below, the plaintiffs (respondents in the Supreme Court) filed a lawsuit against Merck (a petitioner in the Supreme Court), alleging that it had made knowing misrepresentations concerning the cardiovascular safety of Vioxx. Citing the issuance of an FDA warning letter stating that Merck had misrepresented the safety profile of the drug, the widespread media coverage of this event, the resulting decline in the company’s stock price, and numerous consumer-fraud, product-liability, and personal-injury lawsuits filed shortly thereafter, Merck contended that “storm warnings” sufficient to alert a reasonable investor to possible wrongdoing had existed more than two years prior to the filing of the plaintiffs’ suit. The district court agreed, and held that the two-year statute of limitations barred the plaintiffs’ claims. Over a vigorous dissent, the Third Circuit reversed. It held that the statute of limitations did not begin to run until the plaintiffs had knowledge of facts suggesting that Merck had acted with scienter, placing substantial emphasis on the fact that the stock market had reacted moderately to the events relied upon by Merck and the district court.
Absent extensions, which are likely, amicus briefs in support of the petitioners will be due on July 17, 2009, and amicus briefs in support of the respondents will be due on August 17, 2009. Any questions about this case should be directed to Dan Himmelfarb (+1 202 263 3035) in our Washington, DC office.