In order to claim "fraud, deceipt, manipulation or contrivance" under federal securities law, a plaintiff must bring the suit "not later than the earlier of . . . 2 years after the discovery of the facts constituting the violation[] or . . . 5 years after such violation." Some courts start the 2-year statute-of-limitations clock when the plaintiff receives sufficient notice of those facts, some require that the facts show the defendant acted with sufficient intent, and others allow additional time for a plaintiff to conduct an investigation. The Third Circuit ruled in this case that Merck shareholders alleging misrepresentations could sue the company more than 2 years after FDA issued a warning letter on one of the company's drugs.
On April 27, 2010, the Supreme Court clarified how much evidence of misrepresentation is enough to start the clock on the statute of limitations. It ruled unanimously that the statute of limitations period begins to run once the plaintiff "actually discovered or a reasonably diligent plaintiff would have 'discover[ed] the facts constituting the violation' -- whichever comes first." The results of a study about Vioxx, an FDA warning letter, and various lawsuits being filed may be useful in identifying a time when a reasonably diligent plaintiff might begin investigation, but the plaintiff would still need to discover the fact that the defendant had the requisite "scienter," or "mental state embracing intent to deceive, manipulate, or defraud." Because neither the FDA warning nor subsequent litigation revealed facts indicating that the defendant acted with scienter concerning Vioxx, the statute of limitations did not begin to run, and the plaintiff's law suit was filed in a timely manner.
As a result, it will be more difficult for companies to have securities fraud cases under Section 10(b) of the Securities Exchange Act of 1934 dismissed on statute-of-limitations grounds.