Corporate Governance

Merck v. Reynolds: The Supreme Court, Rule 10b-5, and the Statute of Limitations (Faculty Amici and Plain Meaning)

By J. Robert Brown

The argument in the faculty amicus brief could be summed up in two words:  Plain meaning.  The language of the statute provided that the two year limitations period began to run after discovery.  It did not provide that the limitations period should begin to run after inquiry or investigation.  The plain language was not lost on some of the Justices.

Justice Stevens, in a colloquy with Kannon K. Shanmugam, counsel for Petitioners, made the point that Shanmugan was moving beyond the plain language of the statute.

• JUSTICE STEVENS: In the text of the statute it says "two years after discovery," and you argue it should mean two years after he should have discovered, and that period being measured by a date from inquiry notice, which is not mentioned in the statute at all.

• MR. SHANMUGAM: Well, I think that understanding the term "discovery," Justice Stevens, that term really can't be meaningfully understood without reference to the common law against which the statute was enacted. And this Court in interpreting discovery rules --

• JUSTICE STEVENS: But you do agree that you are reading as though it meant two years after he should have discovered?

• MR. SHANMUGAM: Well, that's right, and again I think that getting to the point of "should have discovered" is a fairly modest step. But this Court has repeatedly made clear in interpreting the discovery rule that a plaintiff must exercise reasonable diligence in order to invoke the rule's benefits, and that is simply because the discovery rule is an equitable rule and it effectively incorporates the principle of laches, that is the principle that a plaintiff who sleeps on his rights is not entitled to the benefits of equity. Indeed --

But, perhaps predictably, it was Justice Scalia who honed in on the argument with the greatest force and precision.  Here is a colloquy between Justices Scalia and Kannon K. Shanmugam, counsel for Petitioners.

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).