Corporate Governance

Merck v. Reynolds: Merck v. Reynolds: The Supreme Court, Rule 10b-5, and the Statute of Limitations (A Prediction)

By J. Robert Brown

It is difficult to predict the outcome of a case from the questions at oral argument.  Nonetheless, the tenor of the questioning makes this case possible to predict.  Most of the Justices were active in their questioning, particularly Justice Sotomayor.  Justice Thomas apparently was silent through the entire proceeding. 

The case will come out in favor of Respondents and the vote may be unanimous, although 7-2 is a safer bet.  Of the seven justices, five of them will be Bryer, Stevens, Sotomayor, Ginsburg, and Scalia. Justice Kennedy only asked a few questions but his is likely to be the sixth.  

The majority will, however, divide over the standard ultimately adopted.  A majority will, however, favor a standard that either begins the statute of limitations upon actual knowledge or upon actual and constructive knowledge, with constructive knowledge not requiring any investigation or inquiry but including any information that is known to the market.  Justice Alito seems the most likely to take the position that investors have a duty to inquire but will rely on the standard enunciated in the Seventh Circuit.  That circuit triggered inquiry notice only at the time that the facts constituting the fraud could be discovered within the two year period of limitations. 

The transcript of the oral argument is here. The primary materials in the case can be found at the DU Corporate Governance web site.  The Faculty amicus brief is posted on SSRN.

Full post as published by The Race to the Bottom on December 01, 2009 (boomark / email).