## Facts

- Investors who purchased Merck securities brought a putative class action alleging Merck misrepresented the cardiovascular risks of Vioxx, violating § 10(b) of the Securities Exchange Act and SEC Rule 10b-5.
- The complaint was filed on November 6, 2003, and timeliness turned on the two-year limitations period in 28 U.S.C. § 1658(b)(1).
- In March 2000, the VIGOR study reported adverse cardiovascular results for Vioxx compared with naproxen; Merck publicly advanced a “naproxen hypothesis” to explain the results.
- On September 21, 2001, the FDA publicly issued a warning letter stating Merck’s Vioxx marketing about cardiovascular results was “false, lacking in fair balance, or otherwise misleading.”
- In September–October 2001, products-liability complaints alleged Merck concealed information and intentionally downplayed Vioxx risks.
- The district court dismissed as untimely, concluding pre–November 2001 information would have alerted a reasonably diligent investor and plaintiffs failed to investigate.
- The Third Circuit reversed, concluding the earlier information did not sufficiently indicate Merck acted with scienter and thus did not start the limitations period.

## Issues

1. Under 28 U.S.C. § 1658(b)(1), does “2 years after the discovery of the facts constituting the violation” refer only to actual discovery, or also to what a reasonably diligent plaintiff would have discovered?
2. Do the “facts constituting the violation” for a private § 10(b) action include facts showing scienter?
3. Can “inquiry notice” or “storm warnings,” without discovery of the violation’s constituent facts, start the two-year limitations period?

## Decision

- The Court held that § 1658(b)(1) accrues when the plaintiff actually discovers, or a reasonably diligent plaintiff would have discovered, the facts constituting the violation, whichever occurs first.
- The Court held that “facts constituting the violation” include scienter, a required element of a § 10(b) claim.
- The Court rejected a rule under which inquiry notice alone starts the limitations clock; inquiry notice matters only insofar as it bears on when a diligent investigation would have uncovered the necessary facts.
- The Court affirmed the judgment for plaintiffs’ timeliness (affirming the Third Circuit), concluding the pre–November 6, 2001 materials did not establish, as a matter of law, that a reasonably diligent plaintiff would have discovered facts showing scienter by that date.

## Legal Principles

- Under § 1658(b)(1), “discovery” includes both actual discovery and constructive discovery through reasonable diligence.
- For a private § 10(b) action, “facts constituting the violation” include scienter (intent to deceive, manipulate, or defraud).
- The limitations period does not begin merely upon awareness of adverse information or red flags; it begins when the plaintiff discovered or should have discovered the constituent facts of the claim, including facts supporting scienter.
- Inquiry notice can be relevant in assessing when a reasonably diligent investigation would have revealed the necessary facts, but it is not an independent accrual trigger under the statute.

## Conclusion

The Court construed § 1658(b)(1) to start the two-year limitations period when the plaintiff actually discovers, or a reasonably diligent plaintiff would have discovered, the facts constituting a § 10(b) violation, including scienter, and held that pre-suit warnings and allegations about Vioxx did not, as a matter of law, establish such discoverability before the critical date.


Merck & Co. v. Reynolds, 559 U.S. 633 (2010)