RESPONDENT:Richard Reynolds, et al.
DOCKET NO.: 08-905
DECIDED BY: Roberts Court (2009-2010)
LOWER COURT: United States Court of Appeals for the Third Circuit
CITATION: 559 US 633 (2010)
GRANTED: May 26, 2009
ARGUED: Nov 30, 2009
DECIDED: Apr 27, 2010
David C. Frederick – for the respondents
Kannon K. Shanmugam – for the petitioners
Malcolm L. Stewart – Deputy Solicitor General, Department of Justice, for the United States, as amicus curiae, supporting the respondent
Facts of the case
Investors brought a securities fraud class action suit against Merck & Co. in a New Jersey federal district court. They alleged the company had misled investors about the drug Vioxx’s safety and commercial viability. Merck moved to dismiss the claim arguing that the investors had been put on “inquiry notice” more than two years before they filed suit, and thus the statute of limitations had run. The federal district court agreed and dismissed the suit.
On appeal, the U.S. Court of Appeals for the Third Circuit reversed. It recognized that under the “inquiry notice” standard, plaintiffs are put on notice for the purpose of the statute of limitations in federal securities fraud litigation at the “possibility” of wrongdoing. Moreover, the court held that the investors had not been put on “inquiry notice” more than two years before they filed suit, and thus the statute of limitation had not run.
Did the U.S. Court of Appeals for the Third Circuit err in its application of the “inquiry notice” standard?
Media for Merck & Co. v. Reynolds
Audio Transcription for Opinion Announcement – April 27, 2010 in Merck & Co. v. Reynolds
John G. Roberts, Jr.:
Justice Breyer has our opinion in case 08-905 Merck vs Reynolds.
Stephen G. Breyer:
Now, this case spoke, this is upon a statue of limitations that requires a plaintiff in a securities fraud action to file a complaint, no more than two years, no more than two years after the plaintiff ?discover the facts constituting the violation.
Once you discover the facts and you have two years to file the complaint, it can’t be longer than that.
The complaints here filed a complaint to plaintiff, file a complaint and here is what it claims.
First, Merck a drug company created a drug called Vioxx it was supposed to be painkiller in the same class as Aspirin and Naproxen which I think is some of the well known brand name.
Second, Merck conducted a study that showed among other things that people who took Vioxx when you compare it to the Naproxen.
Once you took Vioxx, it showed sometime increased risk of suffering a heart attack.
Then, Merck argued publicly that the heart attack difference and it wasn’t a great difference, the heart attack difference might reflect the fact that Naproxen helps stop heart attacks.
It was Naproxen that helps to stop them; it wasn’t Vioxx that helps to start them.
That was called the Naproxen hypothesis and then they say that forth all the time Merck knew that Vioxx itself created an additional heart attack risk: Naproxen or no Naproxen.
So it was the Naproxen that started that, that’s what the plaintiff’s claim.
Then, they say when the true facts came out which they say they were facts the stock price of Merck fell, not surprisingly hurting their investments and entitling these plaintiffs to damages for securities fraud.
Now, they filed a complaint saying all these things in November, early November 2003.
Merck said, well November 2003 the court should dismiss the complaint because it was too late and the question that they presented was whether the plaintiff’s has discovered the facts constituting the violation they were complaining about before early November 2001, two years earlier because according to them that was when the time started to run.
If that’s true, the plaintiffs were too late.
The district court agreed with Merck, it said it was too late and the court of appeals did not agreed with Merck and they reversed the district court.
We now agree with the court of appeal.
We think the plaintiffs were not too late; we think they filed their complaint on time.
In reaching our holding, we interpret the statute of limitations and we decide several matters and those are the general points we make aside from this case.
First, the phrase in the statute discovery of the facts violating, constituting the violation covers both what the plaintiffs really knew and also what a reasonably diligent plaintiff would have known.
In other words, what these people discovered in front of us and also what a reasonable person would have discovered.
The history of the statute and of statute of limitations in general over the centuries shows that statutory phrases of the kind before us hold plaintiffs responsible not just or what they did learn but also for those things that a reasonably diligent plaintiff would have learned.
Second, the statute includes among the facts, scienter that is the defendant state of mind for example, the fact that a defendant knew he was not telling the truth.
It includes them among the facts that a plaintiff has to have discovered before the two year limitations period begins to run.
Third, that a fact that plaintiff learns of a simple possibility of fraud is not enough to start the limitations period running, where some times a possibility is such that it could lead a reasonable plaintiff to investigate further.
Fourth, the facts before us here those which will basically uncontested or taken by the lower court as a given, they do not show that by early November 2001 the plaintiff knew or should have known the facts constituting the violation that they alleged in their complaint.
Well, that’s the reason basically that the District Court in our view which dismissed the complaint as being file too late was wrong and the court of appeals which held that the complaint was filed on time was right and we affirm the court of appeals’ decision.
We explain all these highly detailed matters, further if you’d like to read them further in our opinion.
Justice Stevens has filed an opinion concurring in part and concurring in the judgment, Justice Scalia has filed an opinion concurring in part and concurring in the judgment in which he is joined by Justice Thomas.