BLS Library Blog

In a victory for the plaintiff shareholders, the US Supreme Court unanimously ruled in Merck & Co., Inc. v. Reynolds that the statute of limitations actions brought under §10(b) of the Securities Exchange Act of 1934 begins to run upon “discovery of the facts constituting the violation.” The Court held “facts showing scienter are among those that ‘constitut[e] the violation.’” Justice Breyer, writing for the Court ruled that, due to delayed discovery of the claim, the two-year statute of limitations did not bar the investors from bringing a securities fraud action. The decision stated:

We conclude that the limitations period in §1658(b)(1) begins to run once the plaintiff did discover or a reasonably diligent plaintiff would have “discover[ed] the facts constituting the violation”—whichever comes first. In determining the time at which “discovery” of those “facts” occurred, terms such as “inquiry notice” and “storm warnings” may be useful to the extent that they identify a time when the facts would have prompted a reasonably diligent plaintiff to begin investigating. But the limitations period does not begin to run until the plaintiff thereafter discovers or a reasonably diligent plaintiff would have discovered “the facts constituting the violation,” including scienter—irrespective of whether the actual plaintiff undertook a reasonably diligent investigation.

Now the shareholders may pursue their claims that Merck & Co. Inc. violated federal securities law by misrepresenting the safety and commercial viability of Vioxx, a pain reliever ultimately withdrawn from the market. The Court affirmed the Third Circuit Court of Appeal’s decision In re Merck & Co. Securities, Derivative & ERISA Litigation, 543 F.3d 150 (3d Cir. 2008), which held that the statute of limitations does not begin to run until the plaintiff has information suggesting defendant’s scienter. The Third Circuit decision reversed the judgment of dismissal entered by the US District Court for the District of New Jersey, which ruled that the claims were barred by the statute of limitations because the plaintiffs “were put on inquiry notice of the alleged fraud more than two years before they filed suit.” See In re Merck & Co., Inc. Securities, Derivative & “”Erisa” Litigation, 483 F.Supp.2d 407 (D.N.J. 2007).

Justice Scalia, joined by Justice Thomas, concurred in part and concurred in the judgment. Justice Scalia argued for an even more plaintiff-friendly result, stating that the statute of limitations should begin to run when a plaintiff actually discovers facts constituting the violation, rather than when a reasonably diligent plaintiff should have known such facts.

In its decision the Court rejected Merck’s proposed “inquiry notice” standard as inconsistent with the statute, which provides that “discovery” is the event that triggers the 2-year limitations period—for all plaintiffs. It noted that courts applying the traditional discovery rule have long had to ask what a reasonably diligent plaintiff would have known and that courts in at least five Circuits already ask this kind of question in securities fraud cases. Whether the interpretation of “knowledge” to include constructive knowledge will make a meaningful difference in a significant number of cases is unclear. District courts may yet find complaints untimely based on what a “reasonably diligent” investor would do.

The end of the semester is a stressful time for every law student.  If you need a break, watch The Oath, the latest documentary produced by Professor Kaplan.  The Oath presents the story of two brothers-in-law, Abu Jandal, Osama bin Laden’s former bodyguard, and his most famous recruit, Salim Hamdan, who is on trial for terrorism. The film delves into Abu Jandal’s daily life as a taxi driver in Yemen and Hamdan’s military tribunal in Guantanamo Bay prison.   The Oath premiers in New York City on May 7 and runs through May 20 at the IFC Center.   The IFC Center is located on 6^th Avenue and West 3^rd Street in Manhattan.

If after seeing the documentary and finishing exams you want to read more about Hamdan or the Guantanomo trials, check out the books below from the Brooklyn Law School Library.

The Challenge : Hamdan v. Rumsfeld and the Fight Over Presidential Power, by Jonathan Mahler

The description below is provided by the publisher.

In November 2001, Salim Ahmed Hamdan, a 31-year-old Yemeni, was captured and turned over to U.S. forces in Afghanistan. After confessing to being Osama bin Laden’s driver, Hamdan was transferred to Guantánamo Bay, and was soon designated by President Bush for trial before a special military tribunal. The Pentagon assigned a military defense lawyer to represent him, a 35-year-old graduate of the Naval Academy, Lieutenant Commander Charles Swift. No one expected Swift to mount much of a defense. The rules of the tribunals, America’s first in over fifty years, were stacked against him–assuming he wasn’t expected to throw the game altogether.   Instead, with the help of a young constitutional law professor at Georgetown, Neal Katyal, Swift sued the Bush Administration over the legality of the tribunals. In 2006, Katyal argued the case before the Supreme Court and won. This is the inside story of what may be the most important decision on presidential power and the rule of law in the history of the Supreme Court.

Honor Bound: Inside the Guantanamo Trials, by Kyndra Rotunda.

The description below is provided by the publisher. 

Honor Bound is an intriguing book that explains the law of war and the inside story of military commissions. The author is a former JAG lawyer who served on the prosecution team, worked in Guantanamo Bay, and was legal advisor to an elite team of war crimes investigators.  Through a series of entertaining vignettes, Rotunda discusses and analyzes the laws governing the war on terror, the Geneva Conventions, and the laws related to detainees held in Cuba.

A story by Zach Lowe in AmLaw Daily tells of a major law firm partner becoming one of six name plaintiffs in a lawsuit in the US District Court for the Eastern District of New York alleging sex abuse perpetrated by a former teacher at a Brooklyn Catholic prep school. The amended complaint in Zimmerman et al v. Poly Prep Country Day School et al. charges that the school covered up decades of sex abuse by the now deceased coach. Counts I through IV raise claims under the Racketeer Influenced and Corrupt Organizations Act (RICO) 18 U.S.C. §§ 1961-1968.

Efforts to assert civil RICO claims for the Catholic Church cover-up of incidents of sexual abuse by priests have not fared well in the past. For example, the US District Court in Magnum v. Archdiocese of Philadelphia dismissed a class action against the archdiocese of Philadelphia on a 12(b)(6) motion, finding that the plaintiffs lacked RICO standing and failed to state a claim of RICO conspiracy. The Third Circuit affirmed the dismissal, emphasizing the inapplicability of civil RICO to personal injury claims. Lowe’s article also cites a “handful of past high-profile RICO claims alleging a conspiracy within the Albany Roman Catholic Diocese to cover up sex abuse [that] met with disastrous dismissals and a one-year suspension” for the plaintiff’s lawyer in those cases. For a discussion of criminal RICO liability, see Pursuing Criminal Liability for the Church and Its Decision Makers for Their Role in Priest Sexual Abuse (HeinOnline access) by Laura Russell in 81 Wash. U. L. Q. 885 (2003).

For more on the topic of child sexual abuse by clergy, the Brooklyn Law School Library has in its collection Sin against the Innocents: Sexual Abuse by Priests and the Role of the Catholic Church edited by Thomas G. Plante (Call # BX1912.9 .S56 2004).

The Library recently added to its collection Civil RICO: a Definitive Guide by Gregory P. Joseph (Call #KF9375 .J67 2010) with chapters on Jurisdiction and venue — Standing — Elements of cause of action — Imputed and secondary liability — Relief — Pleading and practice issues — Statutes of limitation — Res judicata and collateral estoppel — Constitutionality.

The Law Library Blog at Stanford’s Robert Crown Law Library reports that researchers can get around the 8 cents per page that Congress allows the federal courts to charge for printing documents in the PACER database. Princeton University’s Center for Information Technology Policy has developed a Firefox plug-in called RECAP (PACER spelled backward) designed to make more court documents available to the public at no cost. Users who want to install RECAP must use Firefox.

“RECAP helps users exercise their rights under copyright law, which expressly places government works in the public domain. It also helps users advance the public good by contributing to an extensive and freely available archive of public court documents,” Harlan Yu, a Princeton graduate student, said in a blog post marking the public beta release.

It is possible that if RECAP becomes successful and PACER loses revenue, the federal courts could move to ban it. Until then, RECAP is a cost effective research tool. Another potential problem is that the RECAP developers plan to make the source code available so that it may be easy to seed the Internet Archive with “official court documents” that had been modified in some way. 

The way it works is simple: when you log in to the federal court system and pay with a credit card to download a document, the RECAP plug-in automatically and transparently forwards a copy to the Internet Archive, where it becomes available for free to the next person who wants to read it. See the video Watch RECAP in Action. 
 

The effort is a collaborative one, with others benefiting from your purchases, while you benefit from theirs. For more information on RECAP see Erika Wayne’s article More than One Document a Minute.