Corporate Governance

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

By J. Robert Brown

Its sometimes hard to determine the role of amici, particularly at oral argument.  Nonetheless, a number of the Justices on the Court specifically referred to arguments made by "amici" and used language almost precisely from the amicus brief written by law faculty.  For example, here is a colloquy between Justice Sotomayor and Kannon K. Shanmugam, counsel for Petitioners.  

• JUSTICE SOTOMAYOR: Could you -- could you tell me what the difference is between actual knowledge and constructive knowledge? Because as I read the amici who have submitted briefs arguing that actual discovery should be our standard, they appear to say that actual discovery or actual knowledge includes anything that is in the public domain; that parties are presumed -- and we have plenty of cases that say that -- to know what's out there.  So outside of that, how would constructive knowledge or constructive discovery be any different?

• MR. SHANMUGAM: Well I think --

• JUSTICE SOTOMAYOR: Would it require the shareholder to find the guy in Burma? Or to go and attempt in every case to engage employees in dishonorable conduct by talking about their business in private, company business essentially, that we are asking employees to engage in potentially fiduciary breaches?

• MR. SHANMUGAM: I think it's an open question, Justice Sotomayor, as to what actual discovery would -- would actually mean, and I think that there would be a pretty good argument that you don't actually discover the underlying facts until the plaintiff himself subjectively actually has them in his possession.

• JUSTICE SOTOMAYOR: Well, that's going further than the amici are suggesting. The amici are suggesting, and assuming we accept their suggestion, that it should be everything that is in the public domain, which seems reasonable to me.

• MR. SHANMUGAM: Well --

• JUSTICE SOTOMAYOR: What in addition do you think constructive knowledge would include that the actual knowledge standard doesn't?

• MR. SHANMUGAM: Well, I think it does --constructive knowledge obviously also includes information in the public domain, and we believe that the plaintiffs in this case were on inquiry notice precisely because of that information.

• JUSTICE SOTOMAYOR: Putting all of that --what in addition to that would it include, in your mind?

• MR. SHANMUGAM: Well, for purposes of the inquiry notice analysis, I think that that's all you look to. You look to either information in the plaintiff's possession or information in the public domain. And once there is sufficient information --

• JUSTICE SOTOMAYOR: So -- so you are conceding amici's point that actual -- an actual knowledge standard is the same as a constructive knowledge standard?

• MR. SHANMUGAM: Well, I would hope at a minimum that if the Court were to embrace an actual discovery standard, it would look to information in the public domain, precisely because otherwise you really would be rewarding an ostrich plaintiff because the plaintiff who claimed not to read what was in the newspapers could have the benefit of additional time.

The reference to amici and the suggestion that actual knowledge extends to information in the public domain was the argument made by Faculty in its amicus brief.  It was a position that Justice Sotomayor considered "reasonable" and one that, by the end of the colloquy, Shanmugam was essentially supporting.  

Full post as published by The Race to the Bottom on December 01, 2009 (boomark / email).