Yesterday, the Supreme Court peppered Merck's lawyer with hot questions. Before he started, at least, the advocate likely harbored hope that he could convince Their Honors that the two-year statute of limitations under 28 U.S.C. 1658(b) starts running before the plaintiff could have alleged enough facts to survive a motion to dismiss under the tough pleading standards of Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007), and Tellabs, Inc. v. Makor & Rights, Ltd., 127 S. Ct. 2499 (2007). A comment by Justice Anthony Kennedy summed up the lawyer's problem:
[I]t seems to me, as Justice Stevens' and Justice Ginsburg's questions indicate, that the companies can't have it both ways. They can't endorse the Twombly case and then say just an inquiry notice[] of a general — of a general nature suffices. You have to have specific evidence of scienter. And there is nothing here to indicate that the plaintiffs had that.
Merck & Co., Inc. v. Reynolds, Transcript 11:19-12:1 (U.S. Nov. 30, 2009). Amicus and Merits Briefs here.
Blawgletter covered the Third Circuit's answer in another case this January, when we said:
The Relevance of Scienter to Securities Fraud Limitations Analysis
As all the world knows, the Private Securities Litigation Reform Act — which President Bill Clinton vetoed but which Congress passed anyway — toughened the pleading requirements for securities fraud claims.
The Supreme Court, in Tellabs, Inc. v. Makor & Rights, Ltd., 127 S. Ct. 2499 (2007), recognized the enhancement of difficulty by holding that the PSLRA allows a complaint to survive a motion to dismiss "only if a reasonable person would deem the inference of scienter cogent and at least as compelling as any opposing inference one could draw from the facts alleged." Tellabs, 127 S. Ct. at 2511.
The hardening of the scienter-pleading test would logically mean that the reasonable person wouldn't conclude he, she, or it had a claim until he-she-it learned facts suggesting a strong inference of fraud, right? Which would have the effect of making a statute of limitations defense harder to prove and easier to whip, correct?
You are so smart. The Third Circuit held on Friday that "inquiry notice, in securities fraud suits, requires storm warnings indicating that defendants acted with scienter." Alaska Electrical Pension Fund v. Pharmacia Corp., [554 F.3d 342, 348] (3d Cir. [] 2009). False statements, standing alone, don't tell an investor he-she-it has a claim. The investor must also have information that makes the inference of fraudulent intent "cogent and at least as compelling as any opposing inference one could draw" from the information.
What does an obvious bludgeoning in Supreme Court oral argument do to the value of a case like the one against Merck?
If you said "increases it", you get a silver star.
You'd receive a gold one if you added "but not that much".
Why? BECAUSE THE DISTRICT COURT STILL HASN'T RULED ON WHETHER THE CLASS ACTION COMPLAINT STATES A CLAIM — MORE THAN SIX YEARS AFTER PLAINTIFFS BROUGHT THE CASE!!!
