Merck & Co. v. Reynolds, No. 08–905.

• Court: United States Supreme Court
• Writing for the Court: Justice BREYER delivered the opinion of the Court.
• Citation: 559 U.S. 633,130 S.Ct. 1784,176 L.Ed.2d 582
• Parties: MERCK & CO., INC., et al., Petitioners, v. Richard REYNOLDS et al.
• Docket Number: No. 08–905.
• Decision Date: 27 April 2010

559 U.S. 633
130 S.Ct. 1784
176 L.Ed.2d 582

MERCK & CO., INC., et al., Petitioners,
v.
Richard REYNOLDS et al.

No. 08–905.

Supreme Court of the United States

Argued Nov. 30, 2009.
Decided April 27, 2010.

Evan R. Chesler, Robert H. Baron, Karin A. DeMasi, James I. Doty, Eric Del Pozo, Cravath, Swaine & Moore LLP, New York, NY, Martin L. Perschetz, Sung-Hee Suh, William H. Gussman, Jr., Schulte Roth & Zabel LLP, New York, NY, Kannon K. Shanmugam, Counsel of Record, Richard A. Olderman, Thomas J. Roberts, Samuel Bryant Davidoff, Christopher R. Hart, Williams & Connolly LLP, Washington, DC, William R. Stein, Eric S. Parnes, Hughes Hubbard & Reed, Washington, DC, Counsel for Petitioners.

Max W. Berger, William C. Fredericks, Elliott J. Weiss, Bruce D. Bernstein, Ann M. Lipton, Boaz A. Weinstein, Adam H. Wierzbowski, Bernstein Litowitz Berger & Grossmann LLP, New York, New York, David C. Frederick, Counsel of Record, Gregory G. Rapawy, Michael E. Joffre, Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., Washington, D.C., David A.P. Brower, Jessica J. Sleater, Brower Piven, A Professional Corporation, New York, New York, Matthew Gluck, Richard H. Weiss, Matthew A. Kupillas, Roland W. Riggs, Milberg LLP, New York, New York, Jules Brody, Mark Levine, Stull, Stull & Brody, New York, New York, for Respondents.

Opinion

Justice BREYER delivered the opinion of the Court.

559 U.S. 637

This case concerns the timeliness of a complaint filed in a private securities fraud action. The complaint was timely if filed no more than two years after the plaintiffs “discover[ed] the facts constituting the violation.” 28 U.S.C. § 1658(b)(1). Construing this limitations statute for the first time, we hold that a cause of action accrues (1) when the plaintiff did in fact discover, or (2) when a reasonably diligent plaintiff would have discovered, “the facts constituting the violation”—whichever

130 S.Ct. 1790

comes first. We also hold that the “facts constituting the violation” include the fact of scienter, “a mental state embracing intent to deceive, manipulate, or defraud,” Ernst & Ernst v. Hochfelder, 425 U.S. 185, 194, n. 12, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976). Applying this standard, we affirm the Court of Appeals' determination that the complaint filed here was timely.

I

The action before us involves a claim by a group of investors (the plaintiffs, respondents here) that Merck & Co. and others (the petitioners here, hereinafter Merck) knowingly misrepresented

559 U.S. 638

the risks of heart attacks accompanying the use of Merck's pain-killing drug, Vioxx (leading to economic losses when the risks later became apparent). The plaintiffs brought an action for securities fraud under § 10(b) of the Securities Exchange Act of 1934. See 48 Stat. 891, as amended, 15 U.S.C. § 78j(b); SEC Rule 10b–5, 17 CFR § 240.10b–5(b) (2009); Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 341–342, 125 S.Ct. 1627, 161 L.Ed.2d 577 (2005).

The applicable statute of limitations provides that a “private right of action” that, like the present action, “involves a claim of fraud, deceit, manipulation, or contrivance in contravention of a regulatory requirement concerning the securities laws ... may be brought not later than the earlier of”—

“(1) 2 years after the discovery of the facts constituting the violation”; or

“(2) 5 years after such violation.” 28 U.S.C. § 1658(b).

The complaint in this case was filed on November 6, 2003, and no one doubts that it was filed within five years of the alleged violation. Therefore, the critical date for timeliness purposes is November 6, 2001—two years before this complaint was filed. Merck claims that before this date the plaintiffs had (or should have) discovered the “facts constituting the violation.” If so, by the time the plaintiffs filed their complaint, the 2–year statutory period in § 1658(b)(1) had run. The plaintiffs reply that they had not, and could not have, discovered by the critical date those “facts,” particularly not the facts related to scienter, and that their complaint was therefore timely.

A

We first set out the relevant pre-November 2001 facts, as we have gleaned them from the briefs, the record, and the opinions below.

1. 1990's. In the mid–1990's Merck developed Vioxx. In 1999 the Food and Drug Administration (FDA) approved it

559 U.S. 639

for prescription use. Vioxx suppresses pain by inhibiting the body's production of an enzyme called COX–2 (cyclooxygenase–2). COX–2 is associated with pain and inflammation. Unlike some other anti-inflammatory drugs in its class like aspirin, ibuprofen, and naproxen, Vioxx does not inhibit production of a second enzyme called COX–1 (cyclooxygenase–1). COX–1 plays a part in the functioning of the gastrointestinal tract and also in platelet aggregation (associated with blood clots). App. 50–51.

2. March 2000. Merck announced the results of a study, called the “VIGOR” study. Id., at 291–294. The study compared Vioxx with another painkiller, naproxen. The study showed that persons taking Vioxx suffered fewer gastrointestinal side effects (as Merck had hoped). But the study also revealed that approximately 4 out of every 1,000 participants who took Vioxx suffered heart attacks, compared to only 1 per 1,000 participants who took naproxen. Id., at 296, 306; see

130 S.Ct. 1791

Bombardier et al., Comparison of Upper Gastrointestinal Toxicity of Rofecoxib and Naproxen in Patients with Rheumatoid Arthritis, 343 New England J. Medicine 1520, 1523, 1526–1527 (2000).

Merck's press release acknowledged VIGOR's adverse cardiovascular data. But Merck said that these data were “consistent with naproxen's ability to block platelet aggregation.” App. 291. Merck noted that, since “Vioxx, like all COX–2 selective medicines, does not block platelet aggregation [, it] would not be expected to have similar effects.” Ibid. And Merck added that “safety data from all other completed and ongoing clinical trials ... showed no indication of a difference in the incidence of thromboembolic events between Vioxx” and either a placebo or comparable drugs. Id., at 293 (emphasis deleted).

This theory—that VIGOR's troubling cardiovascular findings might be due to the absence of a benefit conferred by naproxen rather than due to a harm caused by Vioxx—later became known as the “naproxen hypothesis.” In advancing

559 U.S. 640

that hypothesis, Merck acknowledged that the naproxen benefit “had not been observed previously.” Id., at 291. Journalists and stock market analysts reported all of the above—the positive gastrointestinal results, the troubling cardiovascular finding, the naproxen hypothesis, and the fact that the naproxen hypothesis was unproved. See id., at 355–391, 508–557.

3. February 2001 to August 2001. Public debate about the naproxen hypothesis continued. In February 2001, the FDA's Arthritis Advisory Committee convened to consider Merck's request that the Vioxx label be changed to reflect VIGOR's positive gastrointestinal findings. The VIGOR cardiovascular findings were also discussed. Id., at 392–395, 558–577. In May 2001, a group of plaintiffs filed a products-liability lawsuit against Merck, claiming that “Merck's own research” had demonstrated that “users of Vioxx were four times as likely to suffer heart attacks as compared to other less expensive, medications.” Id., at 869. In August 2001, the Journal of the American Medical Association wrote that the available data raised a “cautionary flag” and strongly urged that “a trial specifically assessing cardiovascular risk” be done. Id., at 331–332; Mukherjee, Nissen, & Topol, Risk of Cardiovascular Events Associated with Selective Cox–2 Inhibitors, 286 JAMA 954 (2001). At about the same time, Bloomberg News quoted a Merck scientist who claimed that Merck had “additional data” that were “very, very reassuring,” and Merck issued a press release stating that it stood “behind the overall and cardiovascular safety profile ... of Vioxx.” App. 434, 120 (emphasis deleted; internal quotation marks omitted).

4. September and October 2001. The FDA sent Merck a warning letter released to the public on September 21, 2001. It said that, in respect to cardiovascular risks, Merck's Vioxx marketing was “false, lacking in fair balance, or otherwise misleading.” Id., at 339. At the same time, the FDA acknowledged that the naproxen hypothesis was a “possible

559 U.S. 641

explanation” of the VIGOR results. Id., at 340. But it found that Merck's “promotional campaign selectively present[ed]” that hypothesis without adequately acknowledging “another reasonable explanation,” namely, “that Vioxx may have pro-thrombotic [i.e., adverse cardiovascular] properties.” Ibid. The FDA ordered Merck to send healthcare providers a corrective letter. Id., at 353.

After the FDA letter was released, more products-liability lawsuits were filed. See id., at 885–956. Merck's share price fell by 6.6% over several days. See id., at 832.

130 S.Ct. 1792

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