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On April 27, 2010, the Supreme Court announced its decision in Merck v. Reynolds. The case involves a securities fraud action brought under section 10(b) of the Securities Exchange Act of 1934 claiming that Merck knowingly misrepresented the heart-attack risks associated with Vioxx. The question in the case is what kind of evidence an investor plaintiff must have of scienter in order for the two year statute of limitations, which bars actions brought "after the discovery of the facts constituting the violation," to start running. The applicable statute of limitations, 28 U.S.C. 1658(b), also bars actions brought five years after the violation.
In an opinion delivered by Justice Breyer, the Court held that the two year statute of limitations starts to run 1) when the plaintiff did in fact discover or 2) when a reasonably diligent plaintiff would have discovered the facts constituting the violation -- whichever comes first. The Court also held that the facts constituting the violation include the fact of scienter, which is a mental state that embraces the intent to deceive, manipulate, or defraud. Finally, the Court ruled that the plaintiffs' state of knowledge during the period in contention did not satisfy this standard and therefore the action could proceed.
To discuss the case, we have Dechert LLP Partner Steven A. Engel. Mr. Engel was the Counsel of Record on a brief submitted by the Washington Legal Foundation in support of the petitioners.