Supreme Court and Limitations Period for Securities Fraud

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federal securities law by misrepresenting the safety and commercial viability of Vioxx, a pain reliever ultimately withdrawn from the market.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.

Magna Carta Stranded in NY

Brooklyn Law School’s Visiting Professor Mark Weidemaier, from the University of North Carolina at Chapel Hill, was recently traveling to London doing archival research. His current projects explore the impact of standardization on the dispute resolution provisions in sovereign bonds and the process by which arbitrators generate and apply legal norms. As a result of the disruption to air traffic caused by the ash cloud from Iceland’s Eyjafjallajokull volcano, Prof. Weidemaier had to extend his stay in London. Making the best of his extended stay, he used BLS Library photographic equipment to do additional archival research at libraries throughout London.

The flight delays had an impact on this side of the Atlantic for the original manuscript of Magna Carta on display at the Morgan Library & Museum. This important document came to New York for a special event for Oxford University but the volcanic ash cloud delayed its return to Britain. The Bodleian Library generously offered the Morgan the opportunity to exhibit Magna Carta while new arrangements were being made to transport it back to England. As a result, the document is on view at the Morgan through May 30.

The manuscript at the Morgan is one of four original versions of Magna Carta held by the Bodleian Library. This is the first time that it has left Britain since its issuance almost eight hundred years ago. King John signed Magna Carta or “Great Charter of English Liberties” at Runnymede on June 15, 1217. Magna Carta put limits on the king’s power and enumerated legal principles like the writ of habeas corpus. The US National Archives & Records Administration’s Magna Carta and Its American Legacy provides a more in-depth look at the history of Magna Carta and the influence it had on American constitutionalism. If you are in New York in the next weeks, take advantage of the opportunity to see this document. Visit the Morgan website for more information.

Earth Day 2010

Forty years ago, on April 22, 1970, US Senator Gaylord Nelson (WI) planned the first Earth Day to spread awareness and appreciation for our environment. That led to the creation of the United States Environmental Protection Agency and the passage of the Clean Air, Clean Water, and Endangered Species Acts. Ten years later, Sen. Nelson wrote an article Earth Day '70: What It Meant, 6 EPA J. 6 (1980), a PDF version of which is available to BLS Library patrons at this HeinOnline link. In its print collection, the BLS Library has Not in Our Backyard: The People and Events That Shaped America's Modern Environmental Movement by Marc Mowrey and Tim Redmond (Call #GE180 .M68 1993), an excellent book that highlights many of the lesser-known characters and events that comprise the US Environmental Movement.

Today, Earth Day is celebrated in more than 175 countries. The PBS series, American Experience recently aired "Earth Days", a documentary on the origins of Earth Day and the modern environmental movement. Informative and thought-provoking, it is accessible online here.

BLS Library New Book List

The Brooklyn Law School Library New Book List for April 7 has a number of items worth reading. One in particular, Law on Display: The Digital Transformation of Legal Persuasion and Judgment, by Neal Feigenson and Christina Spiesel both professors at Quinnipiac University School of Law (Call #KF8902.E42 F447 2009), is a study of how visual and multimedia digital technologies are transforming the practice of law and how lawyers construct and argue their cases, present evidence to juries, and communicate with each other. The introduction of the book reads:

Law has traditionally been about words: trial testimony and oral argument, statutes and judicial opinions, negotiations and jury deliberations. Now, as never before, it’s also about pictures displayed on screens: dashboard camera videotapes, digitally enhanced crime scene photos, computer animations, PowerPoint slide shows, and much more. And not just pictures, but multimedia displays combining photographs and videos, drawings and diagrams, the sounds of witnesses’ voices, and, indeed, anything that will help lawyers to present their cases and convince their audiences.

In the book, the authors explain that legal practice has moved from a largely words-only environment to one driven by images. Discussing older visual technologies, such as videotape evidence, the look at current and future uses of visual and multimedia digital technologies, including trial presentation software and interactive multimedia. They also describe how law itself is going online, in the form of virtual courts, cyberjuries, and more, and explore the implications of law’s movement to computer screens. Concurring Opinions has a book review of Law on Display which cites the US Supreme Court decision in Scott v. Harris 127 Sup.Ct 1769 (2007) as the most prominent (though disappointing) instance of a judicial response to new technology where the Court permitted the presentation of video evidence of a high speed pursuit.

The book chapters are The Digital Visual Revolution -- The Rhetoric of the Real: Videotape as Evidence -- Teaching the Case -- Picturing Scientific Evidence -- Multimedia Arguments -- Into the Screen: Toward Virtual Judgment -- Ethics and Justice in the Digital Visual Age. The links are to a supporting website, giving online access to the videotape material discussed in the book.

Unpaid Fines for Overdue Books

A NY Daily News article reports that in the first year of his presidency, George Washington borrowed two books from the New York Society Library, the oldest in the city and failed to return them. The titles of the two volumes were "Law of Nations," a treatise on international relations, and Vol. 12 of the "Commons Debates," which contained transcripts of debates from Britain's House of Commons. When Washington borrowed the items, the New York Society Library had reopened in its old quarters pictured here which was in the old City Hall on Wall Street. At the time, New York was the nation's capital and Congress occupied the building -- then renamed Federal Hall - and it served as the first Library of Congress. Now the NY Society Library is located on East 79th Street.

A New York Law Journal article, Book Selections of Founding Fathers (Westlaw access) by NY Law Society Trustee William J. Dean from February 8, 2007 states that "The library's charging ledger for 1789-92, bound in leather and weighing 18 pounds, was misplaced for years and then found in 1934 in a trash pile in the basement of its fourth home at 109 University Place." In the ledger, an enry for October 5, 1789 reads "Law of Nations [&] Commons Debates - volume 12 - President." Here the ledger records that President Washington took out "The Law of Nations" by Emmerich de Vattel. Also, volume 12 of the House of Commons Debates. The ledger does not record whether the president came in person or sent a messenger, nor is there any record of either volume being returned, or the president or vice-president being fined. The books were due by Nov. 2, 1789, and have been accruing a fine of a few pennies per day ever since. Head Librarian Mark Bartlett is quoted as saying "We're not actively pursuing the overdue fines. But we would be very happy if we were able to get the books back."

One of the two books Washington borrowed, Law of Nations, is available to the BLS community through the Law Library's online Making of Modern Law subscription. A reminder for those students graduating Brooklyn Law School with unpaid fines and overdue or lost books: notices will be placed on their records at the Registrar's Office that will prevent these students from graduating and taking the bar exam unless their library fines are cleared.

BLS Alums in the News

News reports feature two distinguished Brooklyn Law School graduates being appointed to prominent positions. ArtDaily.org has an article on Claudine K. Brown, Class of 1985, being named the Smithsonian Institution director of education. Brown has been director of the arts and culture program at the Nathan Cummings Foundation in New York since 1995. In her new position, Brown will be responsible for defining the Smithsonian’s education program and will develop a plan for educational initiatives, assessment strategies and funding for students in the K-12 range. She will oversee two of the Smithsonian’s educational organizations: the National Science Resources Center and the Smithsonian Center for Education and Museum Studies.

As director of the arts and culture program at the Nathan Cummings Foundation, Brown worked to strengthen community-based arts education programs and to help young people acquire new-media literacy. She worked at The Brooklyn Museum from 1977 to 1985 in several managerial positions inolving education. She also served for more than 20 years as a faculty advisor and instructor in the Leadership in Museum Education Program at Bank Street Graduate School of Education in New York City. She earned her bachelor’s degree from Pratt Institute in New York City and master’s degree in museum education from Bank Street College of Education and her law degree from Brooklyn Law School in 1985.

A report in the Brooklyn Daily Eagle says that another BLS alumnus, Kings County Civil Court Judge Noach Dear, Class of 1992, has been elevated to the Supreme Court. A NYC Councilman for the Midwood, Borough Park and Bensonhurst sections of Brooklyn for about 20 years and a former Taxi and Limousine Commissioner, Judge Dear has been appointed as “acting” Supreme Court Civil Term Judge. He will handle cases dealing with foreclosure and real estate equity issues and consumer debt cases. Elected in 2007 to an 10-year term on the Kings County Civil Court bench, he has impressed court administrators with his work in the consumer debt court. Brooklyn’s consumer debt court deals exclusively with consumer debt collection issues and is the first court of its kind in the country. See the report in Yeshiva World News. Judge Dear has surprised critics as noted in the June 2009 Village Voice article An Unlikely Rescuer from the Jaws of Debt telling of his transformation into a heroic debt court judge, dispensing justice to debt collectors and inept process servers.

RICO Civil Suits and the Church

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.

Free Federal Courts Docs on Firefox

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.

SALDF Hosts Hector the Pit Bull

This week, Hector the Pit Bull was the star attraction at Brooklyn Law School for a humane education lecture about pit bull myths. Hector is one of the dogs rescued from Michael Vick’s dog fighting operation and has the external scars of his former life. Now Hector who just turned 6 years old is a certified therapy dog and humane educator and has been recognized for his efforts in his new home in New York. Hector received a Community Service in Humane Education Award from the Brooklyn Law School Student Animal Legal Defense Fund (SALDF).

SALDF, through its President Deborah Diamant, Class of 2010, hosted the event entitled Breed-Specific Legislation: The Pit Bull Placebo featuring speakers Donald Cleary, Director of Communications and Publications for the National Canine Research Council, and Stacey Coleman, Foundation Manager of the Animal Farm Foundation. The presentation included a slide show about the myths surrounding pit bulls. Some jurisdictions, in a frenzy of panic policy making, have outlawed them. Cleary argued the need for changing attitudes toward animal abuse, including toward criminals who fight dogs, and for recognizing the difference between a resident dog and a family dog to foster more enlightened public policy, as well as deepen the human-canine bond. SALDF is one of several studend chapters of the Animal Legal Defense Fund which is dedicated to providing a forum for education, advocacy, and scholarship aimed at protecting the lives and advancing the interests of animals through the legal system, and raising the profile of the field of animal law.

The BLS Library has in its collection several items on the subject of animal rights including Animal Law: Welfare, Interests, and Rights by David S. Favre (Call #KF390.5.A5 F382 2008) with chapters on Animal ownership -- Veterinarian malpractice -- Damages for harm to pets -- State regulation of ownership -- Anti-cruelty laws: history and intentional acts -- Anti-cruelty laws: duty to provide care -- Agricultural animals -- Access to courts: standing and legal injury -- The Animal Welfare Act -- Animal rights: the jurisprudence -- Animal rights: the social movement.

Enhanced Sentencing for Persistent Felons Unconstitutional

The Second Circuit Court of Appeals in Besser v. Walsh ruled on an appeal from the Southern District of NY that a state statute permitting enhanced sentences for persistent felony offenders violates a defendant's constitutional rights. New York's Penal Law §70.10 provides that defendants convicted of two previous felonies face sentences of a minimum of 15 years and a maximum of life for conviction of a third felony are eligible for the persistent designation. It also directs the judge to determine if a persistent felony offender declaration would be in the public interest. Citing US Supreme Court case Blakely v. Washington, 542 U.S. 296 (2004) in the 52 page opinion, Judge Ralph K. Winter concluded that the sentencing scheme vests unconstitutionally broad discretion in judges to set sentences of up to life in prison for offenders deemed to be persistent felons saying:

We hold that the Sixth Amendment Right to a jury trial, applicable to the states as incorporated in the Fourteenth Amendment, prohibits the type of judicial fact finding resulting in enhanced sentences under New York's {Persistent Felony Offender] statute.

The New York Law Journal article, Penalties for 'Persistent' Felons Violate Constitution, Circuit Says, stated "The immediate effect of yesterday's ruling was not clear. Second Circuit rulings on New York law are not binding on the state's highest court, the Court of Appeals. The federal panel did not, however that state court rulings upholding the constitutionality of the persistent felony offender statute have been 'unreasonable' in light of seemingly contrary U.S. Supreme Court decisions in similar cases."

The article goes on to say that there are 2,467 inmates now serving sentences in New York as persistent felony offenders. The question of retroactive application was an issue in only one of the five cases decided yesterday by the circuit. The 2d Circuit made its ruling in five cases it heard arguments on at the same time on April 16, 2008. The state solicitor general in Attorney General Andrew M. Cuomo's office and assistant district attorneys in Brooklyn and Manhattan defended the statute at the circuit. A state spokesman said yesterday Mr. Cuomo's office is reviewing the decision and would have no immediate comment.

The Brooklyn Law School Library has this recent item on the topic, Three Strikes Laws by Jennifer E. Walsh (Call #KF9685 .W356 2007) with chapters Rising crime rates and the get-tough movement -- The three strikes solution -- The California controversy -- Constitutional challenges to three strikes and you're out -- Implementation and impact of three strikes laws -- Effectiveness of three strikes laws -- Attempts to reform three strikes laws