Merck & Co., Inc. v. Reynolds, 130 S. Ct. 1784 (2010)

The Supreme Court’s docket had some interesting securities cases in 2010 and 2011.  The most significant arguably was Merck & Co. Inc. v. Reynolds, 130 S. Ct. 1784 (2010), where the Supreme Court held that the two-year statute of limitations for Section 10(b) of the Securities Exchange Act and SEC Rule 10b-5 claims does not begin to run until a “reasonably diligent” plaintiff would have discovered the facts constituting the violation, and that such “facts” included the fact of scienter. 

The issue arose in an action by investors against the pharmaceutical manufacturer Merck & Co., brought under § 10(b) of the Securities Exchange Act of 1934. The investors alleged that Merck knowingly misrepresented the risks of heart attacks accompanying the use of Merck’s pain-killing drug, Vioxx. In particular, the investors cited Merck’s public statements presenting a hypothesis that troubling cardiovascular findings in a study comparing Vioxx to another anti-inflammatory drug might be due to the absence of a benefit conferred by the other drug, rather than a harm caused by Vioxx. 

Although the Court distinguished its stated standard from “inquiry notice”--it was not enough merely that a reasonably diligent plaintiff would have investigated further--the Court emphasized that facts tending to show a statement's falsity would not necessarily be sufficient to also show scienter, thereby potentially extending the period before the statute of limitations would begin to run.  As plaintiff’’ claims are often met with statute of limitations defenses, this case may prove vital for defeating defense motions for summary judgment.