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Merck & Co., Inc. v. Reynolds

Supreme Court of the United States · 2010 · Civil Procedure

Civil ProcedureSecurities FraudStatute of LimitationsAccrual28 U.S.C. §1658(b)§10(b)Rule 10b-5statute of limitations

Facts

The investors alleged that Merck defrauded the market by promoting the 'naproxen hypothesis'—the claim that adverse cardiovascular results from the VIGOR study were attributable to naproxen's protective effect rather than to harm caused by Vioxx—while knowing that hypothesis was false. Before November 6, 2001, public information included the March 2000 VIGOR study, continuing public debate about the cardiovascular findings, a September 2001 FDA warning letter criticizing Merck's marketing as misleading, and products-liability complaints accusing Merck of concealing Vioxx's risks. The complaint was filed on November 6, 2003, so it was timely only if the investors had not discovered, and a reasonably diligent plaintiff would not have discovered, the facts constituting the violation before November 6, 2001. Merck argued that these pre-November 2001 events put plaintiffs on inquiry notice and started the limitations clock.

Issue

Under 28 U.S.C. §1658(b)(1), when does the two-year limitations period for a private §10(b) securities fraud action begin to run? More specifically, does the period begin at inquiry notice, or only when the plaintiff actually discovers, or a reasonably diligent plaintiff would have discovered, the facts constituting the violation, including scienter?

Rule

For a private §10(b) action governed by 28 U.S.C. §1658(b)(1), the two-year limitations period begins to run when the plaintiff actually discovers, or when a reasonably diligent plaintiff would have discovered, the facts constituting the violation, whichever comes first. The facts constituting the violation include scienter. Terms like 'inquiry notice' or 'storm warnings' may identify when a reasonably diligent plaintiff would begin investigating, but they do not themselves start the limitations period.

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Investors in Lakeview Robotics, a fictional manufacturer based in Phoenix, filed a private Rule 10b-5 action on July 1, 2026. By May 2024, trade articles and analyst reports sharply questioned the truth of the company's upbeat statements about product safety, but no public information suggested that executives knew those statements were false until an internal-email leak in September 2024 indicated deliberate concealment.

Under 28 U.S.C. §1658(b)(1), when did the two-year limitations period begin to run?

Explanation. The two-year period begins when the plaintiff actually discovered, or a reasonably diligent plaintiff would have discovered, the facts constituting the violation, whichever comes first. Those facts include scienter. Public criticism in May 2024 may have supplied storm warnings or inquiry notice, but that alone does not start the clock. The period begins only once scienter-related facts were or should have been discovered. (Derived from Merck & Co., Inc. v. Reynolds (n.d.).)