I'll have much more on this tomorrow at some point, but for now. . . let me say that any attempt to paint the current Administration's position as "lawsuit-happy" is simply unwarranted.
This case, properly read, presents the question of when, or whether, and investor knows of problems with his or her investment -- viz, from the United States of America's actual Amicus brief (full-text PDF), tonight:
. . . .The error in petitioners’ [Merck's] approach is confirmed by 15 U.S.C. 77m, one of the limitations periods on which the Court in Lampf relied (see 501 U.S. at 360 & n.7), which establishes an express constructive-discovery rule. Section 77m states that “[n]o action shall be maintained to enforce any liability created under section 77k or 77l(a)(2) of this title unless brought within one year after the discovery of the untrue statement or the omission, or after such discovery should have been made by the exercise of reasonable diligence.” 15 U.S.C. 77m (emphasis added). Section 77m provides the best evidence of Congress’s understanding of how constructive discovery principles apply in the securities context. In a case in which the plaintiff fails to exercise “reasonable diligence,” Section 77m unambiguously provides that the limitations period begins to run at the time a diligent plaintiff would actually have discovered the defendant’s false statement, not at the time (i.e., inquiry notice) when the diligent plaintiff would have commenced an investigation. There is no warrant for construing Section 1658(b)(1), which simply refers to “discovery of the facts constituting the violation” and does not expressly provide that constructive discovery will suffice, to establish an earlier trigger for the limitations period.
c. In a case in which even a diligent investigation would take more than two years to complete, the approach that petitioners advocate—under which Section 1658(b)(1)’s limitations period would begin to run when the plaintiff is placed on “inquiry notice” and therefore should commence his investigation—would result in the limitations period expiring before a diligent plaintiff could acquire facts sufficient to survive a motion to dismiss.
That result is incompatible with this Court’s decision in Lampf, which held that the limitations period applicable to private securities actions is not subject to equitable tolling because the period “by its terms, begins after discovery of the facts constituting the violation, making tolling unnecessary.” 501 U.S. at 363. That analysis presumes that the two-year limitations period (unlike the five-year “period of repose” that “serve[s] as a cutoff ” for all claims, see ibid.) cannot bar claims before a reasonably diligent plaintiff could learn the facts necessary to assert them.
In addition to foreclosing the claims of some plaintiffs despite the plaintiffs’ exercise of reasonable diligence, petitioners’ reading of Section 1658(b)(1) would frustrate the purpose, common to the PSLRA and Section 1658(b), of discouraging so-called “strike suits.”
The Senate Report to the Sarbanes-Oxley Act recited that, under Lampf, plaintiffs were on a “one year ‘stop watch’” that ran “from the moment they know that they have been cheated.” S. Rep. No. 146, at 9. In extending the limitations period to two years, the Report explained that “even after the fraud is discovered,” plaintiffs need additional time to “find out more about exactly who participated in the fraudulent activity and how,” in order to “learn[] that an additional wrongdoer” should be “added to the case” that is otherwise ready to be filed. Ibid.
The report criticized the one-year period as too short, driving plaintiffs “to race into court, so as not to be barred by time,” and to “throw[] in every possible defendant and every claim” “almost immediately upon a change in the stock price.” Ibid. Petitioners’ [Merck's] reading of Section 1658(b)(1), under which the two-year limitations period may begin to run well before a reasonably diligent plaintiff learns sufficient facts to support a wellfounded complaint, would create renewed incentives to the sort of hasty filings that Congress sought to discourage. . . .
More tomorrow, but this is not the U.S. trying to encourage "strike suits" -- it is, in fact, the opposite of that. The U.S. here argues that a well-considered, well-researched, fair and balanced suit be filed -- but filed relatively promptly, after discovery of the facts that are alleged to have caused the damages.
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