Merck & Co. v. Reynolds

The Supreme Court has agreed to hear an appeal by Merck & Co. Inc. seeking to block a shareholders' lawsuit over its withdrawn pain reliever Vioxx.

In November 2003, investors filed a class-action lawsuit against Merck in a New Jersey federal district court, alleging the pharmaceutical company had provided misleading information about the risks of Vioxx.

Vioxx was pulled from the market Sept. 30, 2004, because it doubled risks of heart attack, stroke and death.

The company moved to dismiss the claim, contending that the investors had been put on "inquiry notice" more than two years before they filed suit. In April 2007, U.S. District Judge Stanley Chesler agreed, and dismissed the lawsuit on statute of limitations grounds.

In September 2008, a divided three-judge panel on the 3rd U.S. Circuit Court of Appeals 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.

"The District Court acted prematurely in finding as a matter of law that appellants were on inquiry notice of the alleged fraud before October 9, 2001," the 2-1 panel held.

In asking the Supreme Court to review the case, Merck pointed to a circuit split, noting that other courts of appeals have started the period for lawsuits "when an investor knows, or has reason to know, that a representation on which it relied was false."

Question presented: Whether under the "inquiry notice" standard applicable to federal securities fraud claims, the statute of limitations does not begin to run until an investor receives evidence of scienter.