The statute of limitations on a federal securities fraud claim begins to run when the plaintiff has actual notice of the fraud or is placed on “inquiry notice” that it may have been defrauded. Merck & Co., Inc. v. Reynolds (No. 08-905) asks the Court to clarify what “inquiry notice” means in this context. Some circuits (including the Fourth and Eleventh) hold that an investor has “inquiry notice” if he possesses enough facts to suggest the possibility of fraud. Other circuits (including the First, Sixth, Seventh, and Tenth) hold that an investor is on “inquiry notice” when a reasonable investor could have, upon investigation, discovered sufficient facts to file a lawsuit. The Ninth Circuit, joined by the Third Circuit in Merck, has held that the statute does not begin to run until the plaintiff has evidence of the elements of the claim without the necessity of performing an investigation. In Merck, the Third Circuit concluded that product liability lawsuits, an FDA warning letter, and articles in medical journals and the popular press questioning the safety of Vioxx, did not place investors on notice that Merck committed securities fraud.

The Court heard argument in Merck November 30, 2009. Merck advocated for the adoption of an “inquiry notice standard,” meaning that the statute of limitations starts to run when information in the public domain “suggest[s] the possibility” of fraud. The United States argued in support of the shareholders, arguing that “[s]cienter is an essential element” of a securities fraud claim, and that the limitations period does not begin to run until shareholders have discovered (or should have discovered) facts establishing scienter. Merck picked up on this theme in rebuttal, emphasizing that the “narrow issue before the Court … is whether a plaintiff must possess information specifically relating to scienter in order to be on inquiry notice.” Merck then stated that the statute of limitations refers to facts constituting a violation of a 10(b), not the facts establishing the elements of a private cause of action for that violation.

In addition to providing a uniform rule as to when the limitations period begins to run in securities fraud cases, Merck also could have an impact on other statutes of limitations that are triggered by inquiry notice.