Toward a just measure of repose: the statute of limitations for securities fraud. (2024)

ABSTRACT

Statutes of limitations, a long-standing bulwark of civillitigation, mitigate the risk that evidence of meritorious claims willbecome stale and relieve defendants who might be exposed to claims fromunending uncertainty about whether claims will be brought. But thesetwin rationales are balanced against allowing plaintiffs sufficient timeto discover and file meritorious claims. This balance is manifest in thejudicial and congressional effort to fashion a statute of limitationsfor securities fraud claims. The Supreme Court in Merck & Co. v.Reynolds recently attempted to strike that balance in its interpretationof the statute of limitations for securities fraud claims under section10(b) and Rule 10b-5. But we show that the Court has failed. Merckpresents a pleading trap for victims of securities fraud that willpreclude the adjudication of meritorious claims.

Moreover, the Supreme Court's Merck decision exemplifies amuch more serious problem with the entire limitations regime forsecurities fraud. We demonstrate that the discovery provision in thatregime should be discarded for a singular statute of repose as thediscovery provision unnecessarily precludes meritorious claims withoutproviding any more support for the twin rationales beyond what isalready provided by a statute of repose alone. The repose provision byitself reduces the use of stale evidence and litigation uncertainty andit does not unnecessarily preclude meritorious claims. In this sense,our proposal bucks the trend of scholarship addressing the statute oflimitations that advocates eliminating limitations periods entirely. Wefind that insights from behavioral economics and practical realities ofmarket activity justify some measure of repose. Thus, we advocateabolishing the discovery provision in the statute of limitations butkeeping the statute of repose.

TABLE OF CONTENTSINTRODUCTIONI. THE SUPREME COURT, CONGRESS, AND THE STATUTE OF LIMITATIONS FORPRIVATE SECURITIES FRAUD A. Statutes of Limitations, Repose, and Discovery-Accrual B. The Supreme Court's Limitations Period 1. "Discovery" 2. "The Facts Constituting the Violation" C. Congress and the Sarbanes-Oxley ActII. MERCK & CO. V. REYNOLDS AND THE IMPORTANCE OF THE STATUTE OFLIMITATIONS A. Vioxx, Heart Attacks, and Stock Fraud B. The Supreme Court 1. "Discovery" 2. "'The Facts Constituting the Violation" 3. Justice Scalia's Concurrence C. The Reach of Merck and Subprime LitigationIII. THE DANGERS OF MERCK AND ABOLISHING DISCOVERY-ACCRUAL A. The Problematic Incorporation of Scienter 1. Scienter on the Offensive: Collective Scienter and Core Operations 2. The Pleading Game Plaintiffs Cannot Win 3. Failing To Achieve Uniformity in the Statute of Limitations B. The Illusory Benefits to a Discovery Provision 1. The Practical Realities of Securities Litigation and Prompt Filing 2. The Discovery of Merited Section 10(b) and Rule 10b-5 Claims 3. The Discovery Provision's Increased Costs Associated with Securities LitigationIV. MARKET FUNCTIONS, BEHAVIORAL ECONOMICS, AND THE CASE FOR RETAININGREPOSE FOR SECURITIES FRAUD ACTIONS A. Loss Aversion and Nonculpable Market Participants B. Event-Accrual and the Five-Year Statute of ReposeCONCLUSION

INTRODUCTION

Statutes of limitations have been part of the architecture of civillitigation for centuries. (1) These limitations are designed to mitigatethe risk that evidence of meritorious claims will become stale and torelieve potential defendants from unending uncertainty about whetherthey will be brought into court. (2) The "stale evidence"rationale is rooted in the premise that resolving claims on their meritsis more likely if the evidence, including testimony based on recall, isproduced closer in time to the event that gives rise to the claim. (3)The "litigation uncertainty" rationale is based on two relatedpropositions: (1) a party who is uncertain about whether it will be suedis more likely to be distracted by the threat of litigation, and thusless likely to devote resources to productive purposes; and (2) at somepoint in time, it is simply unjust to subject a party to the sword ofDamocles--the lingering possibility that litigation could be brought atany moment. (4) These rationales are invariably balanced againstallowing potential plaintiffs sufficient time to discover and filemeritorious claims.

This delicate balance is manifest in the judicial and congressionaleffort to fashion a statute of limitations for securities fraud claims.The Supreme Court in Merck & Co. v. Reynolds recently attempted tostrike that balance in its interpretation of the statute of limitationsfor securities fraud claims under section 10(b) of the SecuritiesExchange Act of 1934 and SEC Rule 10b-5. (5) The Court held in Merckthat the two-year statute of limitations for plaintiff-investors begins,not when they actually discovered the fraud, but when they discovered orshould have discovered the facts constituting securities fraud, whichincludes scienter--the "mental state embracing [an] intent todeceive, manipulate, or defraud." (6) Merck is the latest effort bythe Court to fashion a limitations regime that serves both rationales.In this Article, we show that the Court has failed. Rather, Merckpresents a trap for victims of securities fraud that will preclude theadjudication of meritorious claims. Moreover, Merck exemplifies a muchmore serious problem with the entire limitations regime for securitiesfraud.

Next, we argue that the discovery provision in the limitationsregime should be discarded in favor of a singular statute of repose. Thediscovery provision unnecessarily precludes meritorious claims withoutproviding any support for the twin rationales beyond what is alreadyprovided by the statute of repose alone. The repose provision by itselfreduces both the use of stale evidence and litigation uncertainty, andit does not unnecessarily preclude meritorious claims. Our proposalbucks the trend of scholarship addressing the statute of limitations,which advocates eliminating limitations periods entirely. We find thatinsights from behavioral economics and practical realities of marketactivity justify some measure of repose. Thus, we advocate abolishingthe discovery provision in the statute of limitations entirely butkeeping the statute of repose.

Part I.A of this Article provides a brief overview of statutes oflimitations and repose, as well as their purposes. Part I.B nextprovides the necessary background to understand the Supreme Court'sMerck decision by discussing the initial statute of limitations for Rule10b-5 actions that the Supreme Court adopted in Lampf, Pleva, Lipkind,Prupis & Petigrow v. Gilbertson and its common law evolution,including the federal appellate courts' interpretations of whatconstitutes "discovery" and "facts constituting theviolation." (7) Part I.C then discusses Congress's statute oflimitations in the Sarbanes-Oxley Act of 2002 (SOX) and how the federalappellate courts have interpreted it. (8)

Part II examines Merck, including its factual and proceduralbackground, its two rulings of note, and Justice Scalia'sconcurrence advocating for an "actual discovery" standard, aseemingly pro-plaintiff posture. (9) Part II.C also observes that Merckwill likely play an increasingly important role in securities fraudlitigation.

But, as Part III then argues, Merck's discovery rule does moreharm than good. First, Merck's incorporation of scienter allowsdefendants to trigger discovery by invoking methods of imputingknowledge. (10) Second, the discovery standard may force plaintiffs toconcede that essential facts are not evidence of scienter or to allegefraud by hindsight--setting plaintiffs up for ready dismissal. (11) Andthird, by incorporating scienter into the discovery inquiry, Merck hasfailed to achieve uniformity in the statute of limitations because thecourts of appeals have different interpretations of what constitutes anadequate allegation of scienter. (12)

Recognizing that Merck is marred with pitfalls and pleading traps,Part III next questions the usefulness of the discovery provision forthe statute of limitations for section 10(b) and Rule 10b-5 actions andconcludes it is unnecessary. The practical realities of securities fraudclaims already encourage diligence and prompt filing. (13) Moreover,discovery of meritorious securities fraud claims is difficult andtime-consuming. (14) By abolishing the discovery provision, meritoriousclaims proceed and the costs associated with litigating these colossalsuits should also decrease. (15)

Yet Part IV argues that, contrary to the scholastic trend towardeschewing limitations periods entirely, some repose is still necessary.(16) Insights from behavioral economics, such as loss aversion, justifya statute of repose for section 10(b) and Rule 10b-5. Also, withoutrepose, securities fraud would affect settled economic expectations ofnonculpable market participants. Part IV then proposes a statute ofrepose for securities fraud. This limitation period must be abright-line rule simple in application. And it must be long enough topromote merits resolution and to prevent an end run around the privateright of action. Thus, Part IV concludes that Congress should retainonly its five-year statute of repose that is triggered upon thehappening of the fraud.

I. THE SUPREME COURT, CONGRESS, AND THE STATUTE OF LIMITATIONS FORPRIVATE SECURITIES FRAUD

In the United States, companies are traditionally characterized bydispersed ownership, that is, "no single shareholder [or group]owns sufficient shares to ensure its ability to elect directors,"and, as a result, ownership is separated from control. (17) Thus,shareholders in a dispersed ownership system depend on a company'spublic disclosures for information because these shareholders havelittle, if any, direct access to management and cannot easily monitorcorporate affairs. (18) Because shareholders depend on corporatedisclosures as their only source of information, it is all the moreimportant that these disclosures are accurate. Congress concluded thatone way to ensure the integrity of the nation's marketplace is toafford private rights of action to victims of securities fraud. (19) Asthe Supreme Court has long recognized, these private rights of actionsupplement enforcement efforts by the Securities and Exchange Commission(SEC) and the Department of Justice (DOJ) to provide for holisticenforcement of federal securities laws. (20)

Several significant securities laws have shaped private securitiesfraud litigation. First, the Securities Act of 1933 (1933 Act) aimed toprovide investors with sufficient, material information regardingsecurities that were offered for sale, and to prohibit deceit by theofferees. (21) Section 11 of the 193 3 Act regulates the primaryoffering of securities by granting a private right of action to stockpurchasers against those who make material misrepresentations oromissions in the registration statement of an initial public offering.(22) Section 12(a)(2) grants a private right of action against those whooffer or sell stock through a prospectus or oral communication thatcontains a material omission or misstatement. (23) The differencebetween section 11 and section 12(a)(2) is that section 11 pertains tomaterial misstatements and omissions made in a registration statement,while section 12(a)(2) pertains to material misstatements or omissionsmade in a prospectus. (24) In section 13 of the 1933 Act, Congressimposed a one-year statute of limitations triggered upon constructivediscovery of the false statement and a three-year statute of repose thatstarts on the date of the fraud for section 11 and section 12 claims.(25) Section 13 triggers the statute of limitations either "withinone year after the discovery" of the false statement "or aftersuch discovery should have been made by the exercise of reasonablediligence." (26) The statute of limitations governing section 11and section 12 (a)(2) is triggered upon constructive discovery becausedetermining when a plaintiff should have uncovered an untrue assertionin a registration statement or prospectus is arguably a simple task.(27)

Congress also passed the Securities Exchange Act of 1934 (1934 Act)to regulate the secondary trading of securities. (28) The primary aim ofthe 1934 Act was "to protect investors against [the] manipulationof stock prices." (29) The federal courts recognized that investorshad an implied private right of action under section 10(b) of the 1934Act, which prohibits fraudulent or deceptive conduct in connection withthe purchase or sale of any security, and the SEC's accompanyingRule 10b-5. (30) Because this right of action was implied, it did notcontain a statute of limitations, (31) but several other provisions ofthe 1934 Act did, including section 9(e), section 16(b), and section18(a). (32) These sections had a one-year statute of limitations and athree-year statute of repose--the "one-and-three-yearstructure." (33) It was unclear, however, whether this statute oflimitations applied to section 10(b) and Rule 10b-5 actions. (34)

A. Statutes of Limitations, Repose, and Discovery-Accrual

Before discussing the statutes of limitations and repose forsecurities fraud specifically, a general understanding of these twoprocedural rules is necessary. "The statute of limitations is acomplete bar to actions that do not meet its time limits. It is in noway dependent on the merits of the case." (35) The statute oflimitations creates an affirmative defense when a plaintiff fails to suewithin a specified time after the plaintiff discovers the cause ofaction, although it is often subject to tolling principles. (36) Astatute of repose "extinguishes a plaintiff's cause of actionafter the passage of a fixed period of time, usually measured from oneof the defendant's acts." (37) In essence though, both provide"repose," (38) or a time limit after which an action cannot bebrought in court. (39) Professor Tyler T. Ochoa and Judge Andrew J.Wistrich have written the seminal work that describes the purposes ofstatutes of limitations and repose. Simply stated, Professor Ochoa andJudge Wistrich found that these statues aim (1) to prevent the use ofstale evidence, and (2) to provide defendants with the comfort ofknowing that they are free from suit and to protect settledexpectations. (40)

Statutes of limitations and statutes of repose, however, differ inboth length and accrual. Statutes of limitations are often shorter andare usually triggered upon discovery of the claim (discovery accrual),whereas statutes of repose are often longer, capping the time forliability, and are triggered by the complained of event (event-accrual).(41) As the Article illustrates, the statute of limitations, with itsdiscovery-based accrual, proves problematic in application.

B. The Supreme Court's Limitations Period

Section 10(b) of the 1934 Act was enacted without a statute oflimitations or repose because the private right of action under section10(b) and Rule 10b-5 was judicially created. So, "faced with theawkward task of discerning the limitations period that Congress intended... to apply to a cause of action it really never knew existed,"(42) courts implied the applicable period using one of fouralternatives: (1) the statute of limitations contained in section 13 ofthe 1933 Act; (43) (2) the forum state's statute of limitations forcommon law fraud; (3) the statute of limitations for securities fraudunder the forum state's "blue-sky law"; (44) or (4) thestatute of limitations contained in section 9(e), section 16(b), orsection 18(a) of the 1934 Act. (45)

For decades, courts borrowed the statute of limitations from theclosest analogous state-law cause of action. (46) But "[d]ecidingwhich features of state periods of limitations to adopt for whichfederal statutes waste[d] untold hours .... There [were] manypotentially analogous state statutes, with variations for differentkinds of securities offenses and different circ*mstances that might tollthe period of limitations." (47) Recognizing the need to minimizethe uncertainty and time-consuming litigation inherent in that approach,the Third Circuit in In re Data Access Systems was the first to advocateand adopt a uniform limitations period for section 10(b) and Rule 10b-5claims. (48) In Data Access, the Third Circuit determined that using thelimitations periods in other sections of the 1934 Act would lead todesired uniformity and certainty. (49) Specifically, the Third Circuitadopted the one-and-three-year structure that applied to sections 9(e),16(b), and 18(a) of the 1934 Act. (50)

After Data Access, the stage was set for a uniform, nationalstatute of limitations. "Both the bar and scholars ... pleaded,with a unanimity rare in the law, for help.... Only Congress or theSupreme Court [could] bring uniformity and predictability to thisfield." (51) And in 1991 the Supreme Court did just that, holdingin Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson that theone-and-three-year structure under section 9(e) of the 1934 Act appliedto securities fraud actions under section 10(b) and Rule 10b-5. (52) Butthe Court's answer was incomplete as it failed to resolve (1)whether discovery meant actual discovery or encompassed the idea ofinquiry notice, and (2) what "facts" constituted the violationthat must be discovered. Thus, the courts of appeals returned to oldhabits with the statute of limitations and divided--on bothquestions--again.

1. "Discovery"

After Lampf, scholars were in agreement: the Supreme Court'sendorsem*nt of section 9(e) meant that the statute of limitations wastriggered upon actual discovery, not constructive discovery. (53) TheThird and Ninth Circuits arguably agreed, (54) but the majority ofcircuits did not, concluding that "inquiry notice"--a versionof constructive discovery--was the appropriate standard. (55) Inquirynotice is the "point at which [plaintiffs] possess[] a quantum ofinformation sufficiently suggestive of wrongdoing," that theyshould investigate "to confirm the existence of [their]claim." (56) The courts concluding that the statute of limitationswas triggered upon inquiry notice were concerned that if the standardwas actual discovery, investors would wait to see whether a poorlyperformed stock recovered, then reap investment profits if it did, andsue for damages if it did not. (57) Whether a plaintiff was on inquirynotice involved a two-step analysis:

(1) First, when did the plaintiff receive sufficient information ofpossible wrongdoing such that a reasonable investor would undertake aninvestigation to determine if a legal claim exists ("inquirynotice"); [and]

(2) [Second,] when thereafter, in the exercise of reasonablediligence should the plaintiff have discovered the facts constitutingthe violation. (58)

The idea of inquiry notice is less than clear, and the courts ofappeals disagreed over many aspects of it. The courts could not agree onthe doctrinal reasons for rejecting an actual discovery standard. (59)And the application was even more divided: some circuits held that thestatute of limitations began when the plaintiff was on inquirynotice--that is, when the facts suggested possible wrongdoing. (60) Incontrast, other circuits stated that the statute of limitations beganafter the plaintiff, exercising reasonable diligence, could havediscovered the facts constituting the violation. (61) And courts thatadopted this latter approach were likewise divided over whether"reasonable diligence" was measured objectively, subjectively,or both. (62) In some circuits, inquiry notice involved burden-shifting:once the defendant established that the plaintiffs were on inquirynotice, the plaintiffs had to show that they exercised reasonable duediligence but were unable to discover their injuries. (63) The SecondCircuit adopted an approach all its own: if the plaintiff was on inquirynotice and failed to conduct an investigation, the statute oflimitations began on the date the plaintiff was placed on inquirynotice; (64) but if the plaintiff investigated, the statute oflimitations began when a reasonably diligent plaintiff would havediscovered the facts constituting the violation. (65)

2. "The Facts Constituting the Violation"

Yet the debate over how to interpret discovery overshadowed a morefundamental question concerning the statute: what does the plaintiffneed to discover? To state a Rule 10b-5 claim, a plaintiff must allegeand prove six elements: (1) that the defendant made a materialmisrepresentation or omission; (2) that the defendant acted with awrongful state of mind (scienter); (3) that the materialmisrepresentation or omission was made in connection with the purchaseor sale of a security; (4) that the plaintiff relied on the materialmisrepresentation; (5) that the plaintiff suffered an economic loss as aresult; and (6) that the material misrepresentation actually caused theloss. (66) The majority of courts concluded that plaintiffs had to haveonly sufficient "storm warnings" (67)--knowledge of suspiciousfacts--to trigger a duty to investigate, and that once a reasonablydiligent investigation would have discovered these suspicious facts, thestatute of limitations began. (68) Most circuits were less than clear,though, regarding whether storm warnings or suspicious facts includedscienter. (69)

C. Congress and the Sarbanes-Oxley Act

In 2001, the landscape of corporate regulation changed when massivecorporate scandals rocked investor confidence in the capital markets.When corporate giants Enron, WorldCom, and Adelphia crumbled amidallegations of years of crooked accounting, Congress responded with theSarbanes-Oxley Act of 2002. (70) SOX was significant on many fronts,most notably creating stringent reporting requirements aimed atotherwise lax corporate oversight. (71) SOX also expanded the statute oflimitations applicable to most private remedies under the securitieslaws. (72) For section 10(b) and Rule 10b-5 claims, SOX provided atwo-year statute of limitations and a five-year statute of repose. (73)The language adopted by Congress was similar to the language used insection 9(e) of the 1934 Act. (74)

Congress thus lengthened the one-and-three-year structure adoptedin Lampf. In its report on SOX, the Senate Judiciary Committee expressedconcern that the one-and-three-year structure "unfairly limit[ed]recovery for defrauded investors in some cases," (75) noting thatsome states were forced to forgo their claims against Enron, forexample, because of the statute of limitations. (76) The Committee wasalso concerned that the complexity and nature of securities fraud madethese claims difficult to detect. (77) Additionally, the Committeeobserved that plaintiffs faced significant procedural obstacles underthe Private Securities Litigation Reform Act of 1995 (PSLRA), includingits lead-plaintiff selection process, (78) its stay of discovery pendinga motion to dismiss (79)--"consideration of which can take over ayear in itself" (80)--and its heightened pleading standards. (81)The Committee worried that by the time plaintiff-investors had learnedenough facts to file a complaint capable of surviving a motion todismiss and to begin discovery, the claim was likely to be time barred.(82) To allow plaintiffs time to adequately investigate their claims andto file meritorious suits, the Committee proposed, and Congressaccepted, lengthening the statute of limitations. (83)

But Congress's expanded limitations period left the phrase"discovery of the facts constituting the violation" undefined,(84) and the courts of appeals still had to determine whether discoverymeant actual discovery or something else. After SOX, two circuitschanged their approaches. The Ninth Circuit in Betz v. Trainer Wortham& Co. and the Third Circuit in In re Merck & Co. held thatplaintiff-investors must have actual knowledge that the defendant mademisrepresentations with scienter before incurring any duty toinvestigate. (85) These cases thus presented yet another approach to thestatute of limitations. The defendants in Merck asked the Supreme Courtto weigh in, (86) and the Court granted a writ of certiorari. (87)

II. MERCK & Co. V. REYNOLDS AND THE IMPORTANCE OF THE STATUTEOF LIMITATIONS

Despite the Supreme Court's initial attempt in Lampf to definethe statute of limitations and Congress's remedial legislation inSOX, the standard remained in flux. (88) In Merck, the Court againentered the fray and clarified that a section 10(b) and Rule 10b-5action accrues "(1) when the plaintiff did in fact discover, or (2)when a reasonably diligent plaintiff would have discovered, the factsconstituting the violation--whichever comes first," (89) and that"[f]acts constituting the violation" include scienter. (90)This Article recounts the case in some detail because the decisionserves as background for later discussion.

A. Vioxx, Heart Attacks, and Stock Fraud

In May 1999, the Food and Drug Administration (FDA) approved Vioxx,a potential "blockbuster" painkiller developed by Merck thatwas used to treat arthritis and other acute pain. (91) Merck toutedVioxx in press releases, public statements, and SEC filings aspossessing all the beneficial effects of traditional pain relievers, butwithout the harmful gastrointestinal side effects associated with thosedrugs. (92) Before the FDA approved Vioxx though, some Merck officialswere concerned that the drug could cause heart attacks, or"cardiovascular events." (93) Accordingly, Merck began a studycomparing Vioxx with the active ingredient in other painrelievers--naproxen--and discovered that Vioxx users had a higherincidence of heart attacks than naproxen users. (94) Merck disclosed thestudy's findings in a press release in March 2000. (95) Thecompany, however, tried to soften this blow and advanced the"naproxen hypothesis"--that the lower incidence of heartattacks for patients taking naproxen was the result of a beneficialeffect of naproxen, rather than any harmful effect of Vioxx. (96)

In 2001, the FDA conducted a hearing to determine if the results ofMerck's study must be incorporated into Vioxx's labeling. (97)That same year, a group of plaintiffs brought a products-liabilitylawsuit against Merck and another pharmaceutical company, alleging thatVioxx and another pain reliever were marketed as effective painrelievers, despite the fact that the companies' own researchdemonstrated that users of these drugs were more likely to suffer heartattacks. (98) At about this time, the Journal of the American MedicalAssociation picked up the results of Merck's study and assertedthat Vioxx posed an increased risk of heart attack, garneringconsiderable media attention. (99) Attracting additional mediaattention, the FDA posted a warning letter that it had issued to Merckregarding Vioxx. (100) The letter stated that Merck's promotionalmaterials were "false, lacking in fair balance, or otherwisemisleading." (101) Then, in October 2001, the New York Timesreported that Vioxx users may have an increased risk of heart attack.(102)

A few months later, in April 2002, the FDA required Merck todisclose the risk of heart attack on Vioxx labels. (103) A fall in Vioxxsales ensued; Merck's stock dropped 6.5 percent when Reutersreleased a story on Merck's trouble. (104) The Wall Street Journalthen published an article that discussed an additional third-party studythat concluded Vioxx was linked to a 39 percent increase in the risk ofheart attack when compared with a competing pain reliever. (105)

It was not until November 2003 that a group of investor-plaintiffsfiled a section 10(b) and Rule 10b-5 action against Merck alleging thatthe company, its officers, and its directors knowingly misrepresentedthe heart attack risk associated with Vioxx. (106) Merck later withdrewVioxx from the market, and Merck's stock dropped an additional 27percent. (107) In November 2004, the Wall Street Journal reported thatinternal Merck e-mails showed that Merck fought for years "to keepsafety concerns over [Vioxx] from destroying the drug's commercialprospects." (108)

The district court dismissed the complaint, concluding that theplaintiff-investors should have been alerted to the possibility ofMerck's misrepresentation before November 2001 because (1)Merck's March 2000 study showed adverse cardiovascular results forVioxx; (2) the FDA's warning letter in September 2001 statedMerck's marketing campaign was false; and (3) users filedproducts-liability actions in September and October 2001 that allegedMerck intentionally downplayed risks of Vioxx. (109) According to thedistrict court, investors had abundant public information that wouldcause investor concerns and would put investors on inquiry notice beforeNovember 2001. (110) The Third Circuit, however, reversed the districtcourt's holding because the three events before November 2001 didnot suggest that Merck acted with scienter. (111)

B. The Supreme Court

The Supreme Court agreed with the Third Circuit that beforeNovember 2001, the plaintiffs did not, and could not, discover the factsconstituting the violation. (l12) The Court reasoned that the FDAwarning letter showed little about whether Merck put forth the naproxenhypothesis with fraudulent intent, and that the products-liabilitylawsuits did not suggest that Merck knew the naproxen hypothesis wasfalse. (113) In so doing, the Court made two notable rulings: it definedboth "discovery" and "the facts constituting theviolation," effectively ending the circuit splits regarding section10(b) and Rule 10b-5 claims.

1. "Discovery"

First, the Court clarified that the statute of limitations forsection 10(b) and Rule 10b-5 begins when the plaintiff actuallydiscovered, or reasonably should have discovered, the facts constitutingthe violation--whichever comes first. (114) The Court reasoned that SOXimplicitly incorporated constructive discovery because"discovery" was traditionally a term of art that encompassedboth actual and constructive discovery, (115) and, according to themajority, every court of appeals held this before SOX. (116) The Courtthen put the concept of inquiry notice to rest because inquirynotice--the point at which facts would lead a reasonably diligentplaintiff to investigate a possible fraud--was not necessarily the timeat which a plaintiff would have discovered the fraud. (117) And this,the Court continued, could not be reconciled with the statute'stext that states a plaintiffs claim accrues after discovery. (118)

2. "The Facts Constituting the Violation"

The Supreme Court also clarified that the "facts constitutingthe violation" include scienter, or the defendant's mentalstate. (119) This is so, reasoned the Court, because scienter is anessential element to Rule 10b-5 claims, a fact emphasized when Congressenacted heightened pleading requirements for scienter in the PSLRA.(120) The Court expressed concern that "[s]o long as a defendantconcealed for two years that he made a misstatement with an intent todeceive, the limitations period would expire before the plaintiff hadactually 'discovered' the fraud." (121)

The Court declined to address whether reliance and loss causationwere also facts "constitut[ing] the violation." (122) But theCourt left open the possibility that plaintiffs may be on notice offraud solely by the materiality of a representation when it observedthat "[i]t is unlikely ... that someone would falsely say 'Iam not married' without being aware of the fact that his statementis false," thereby suggesting scienter. (123) The Court noted,however, that an incorrect prediction about a firm's futureearnings by itself was insufficient to suggest scienter. (124)

3. Justice Scalia's Concurrence

Justice Scalia has been forthright with his distaste for impliedprivate rights of action in general (125) and is often regarded as apro-business judge. (126) But in Merck, Justice Scalia, joined byJustice Thomas, advocated for an actual discovery standard, a moreplaintiff-friendly approach. (127) He disagreed with the majority thatthe statute of limitations starts upon either actual or constructivediscovery, arguing that the statute of limitations begins only if theplaintiffs actually discovered the fraud. (128) He pointed to thestatute of limitations for section 11 and section 12 claims that statesthese claims must be "brought within one year after the discoveryof the untrue statement or the omission, or after such discovery shouldhave been made by the exercise of reasonable diligence." (129) Inthe context of section 11 and section 12 claims, Justice Scalia pointedout, "discovery" cannot mean constructive discovery because itwould render the second phrase superfluous. (130) Justice Scalia alsofound good reason for the actual discovery rule because scienter, as anelement to Rule 10b-5 actions, is more difficult to discover than theelements of section 11 or section 12 claims, which involve only whetheran untrue statement was made in a prospectus or registration statement.(131)

In addition, Justice Scalia took issue with the majority'sclaim that the federal appellate courts all agreed that the statute oflimitations for section 10(b) claims meant "constructivediscovery." First, Justice Scalia noted that it was unrealistic toassume that both houses of Congress knew of and agreed with the federalappellate courts; and even if they had, their "collectiveintent" could not trump the plain text of the statute they enacted.(132) Second, Justice Scalia stated that the appellate courts were infact divided over their interpretation of "discovery" underthe statute of limitations. (133)

C. The Reach of Merck and Subprime Litigation

The reach of Merck thus far is unclear. To the extent that the timefrom the end of the alleged class period until the plaintiffs file theircomplaint is a proxy for the likelihood that a statute of limitationsdefense will arise, filing statistics suggest that historically, thestatute of limitations has not been much of an issue. That is consistentwith the idea that Merck will affect only a few outlier securities classactions that are filed late. According to Cornerstone Research, between1997 and 2008, the median time between the plaintiff's complaintand the end of the class period was twenty-eight days. (134) NERAEconomic Consulting also reported that "[t]he majority ofcomplaints in securities class actions are filed within the three-monthperiod after the end of the alleged class period." (135)

Although these statistics suggest that Merck may have limitedapplication, more recent filing statistics suggest that the periodbetween the filing of the plaintiffs' first complaint and the endof the class period has been lengthening. For example, CornerstoneResearch found that although the median filing lag between 1997 and 2008was twenty-eight days, for 2009 the median filing lag was sixty-fourdays; and in the last half of 2009, the median filing lag was onehundred days. (136) NERA reported a longer delay in general, but alsofound an upward trend as of late: for the past three years, an averageof 161 days passed from the end of the class period to the time theplaintiff filed their complaint. (137) But in the last half of 2009, theaverage time increased to 279 days with only 69 percent of cases filedwithin one year. (138) These statistics suggest that the statute oflimitations may be more of an issue now than before. Indeed, thepercentage of filings with a one-year lag or more has increased steadilyfrom 5 percent in 2005 to 18 percent in 2009, (139) and the percentageof filings with a lag of less than six months has fallen from 86 percentin 2005 to 71 percent in 2009. (140)

One area in which the statute of limitations may prove particularlysignificant is the ongoing litigation surrounding the subprime meltdownand the credit crisis. (141) According to Kevin LaCroix, author of thehighly respected legal blog the D&O Diary, "[a]s we moveforward in time and the crisis-related events recede further into thepast, additional filings increasingly may raise questions of timeliness.Statute of limitations questions are already arising in some of thesecases ... and they are increasingly likely to arise in futurecases." (142) LaCroix also observes that many securities fraudcases had been put on the back burner by plaintiff-investors because ofthe urgency of the credit crisis, and that now, these claims areresurfacing. (143) These too will likely raise statute of limitationsissues. In sum, filing statistics and the credit crisis litigationsuggest that Merck's impact will not be limited to a few cases.

III. THE DANGERS OF MERCK AND ABOLISHING DISCOVERY-ACCRUAL

Merck was quickly heralded as a victory for plaintiffs, (144)mainly because the outcome could have been worse: the Court could haveconcluded that the statute of limitations is triggered when aplaintiff-investor is on inquiry notice (145)--a vague and malleableconcept that starts the clock when a plaintiff is alerted to thepossibility that fraud might be afoot. Still, Part III explores thepitfalls of Merck. This Part shows that Merck precludes the prosecutionof meritorious securities fraud claims because it sets up a pleadingtrap for plaintiffs that may force devastating concessions or exposeattorneys to Rule 11 sanctions. Part III also examines whether thediscovery provision interpreted in Merck is necessary at all andconcludes that it is not. As this Part demonstrates, the discoveryprovision fails to spur prompt filing, rests on the unfounded assumptionthat plaintiffs have discovered their claim but intentionally delayedfiling, and imposes a procedural cost with no corresponding benefit.

A. The Problematic Incorporation of Scienter

The Supreme Court's securities fraud jurisprudence since BlueChip Stamps v. Manor Drug Stores (146) has been consistent in oneregard: it has rejected the expansion of remedies afforded to investorsfor securities fraud and limited the exposure of defendants tosecurities fraud liability. (147) What then explains Merck? Does thecase represent a paradigm shift in favor of plaintiff-investors,possibly the result of the recent financial disaster? It is possiblethat this scandal, which led to a loss of confidence in the market,translated into a difference in judicial attitude. (148) Although thatis possible, Merck is not a paradigm shift at all. The decision doeslittle to help investors; rather, it allows defendants to use scienteroffensively and puts plaintiffs in a perilous pleading position.

Part III.A first shows that by incorporating scienter, Merck hasgiven defendants a tool to trigger the statute of limitations--they caninvoke the collective scienter and core operations theories to arguethat the plaintiffs constructively discovered their fraud earlier. (149)This Section also cautions plaintiffs of Merck's pleading trap.Plaintiffs must craft alleged misrepresentations as actionable in orderto survive a Rule 1203)(6) motion to dismiss, but must also treadcarefully to avoid triggering the statute of limitations. (150)Conceding that earlier misrepresentations were not made withscienter--or were not evidence of it--may force plaintiffs to rely onfewer indicia of the corporate defendant's culpable mental state,or force plaintiffs into pleading fraud by hindsight. Another danger isthat if plaintiffs file before the event they claim provided them withsufficient evidence of scienter, they may set themselves up for Rule 11sanctions. Last, Part III.A shows that Merck failed to establish auniform statute of limitations when it incorporated scienter--thefederal courts have no common requirements for alleging and proving acompany's mental state for securities fraud. (151)

1. Scienter on the Offensive: Collective Scienter and CoreOperations

The statute of limitations will be significant in future securitiesfraud actions. (152) But this may be to plaintiffs' detriment.Merck held that the statute of limitations does not begin until theplaintiff has, or should have, discovered the facts constituting theviolation, which include scienter. (153) This appears to be a victoryfor plaintiffs--the statute does not begin on the possibility of fraud,but rather upon the discovery of actual fraud. But "[a]ll thatglisters is not gold," (154) and the Court's seeminglypro-plaintiff standard provides a formidable weapon for defendants:scienter can be used offensively, and methods of imputing scienter, suchas the collective scienter theory and the core operations inference, canbe used to trigger constructive discovery.

Scienter is usually pleaded with circ*mstantial evidence. (155) Atthe Rule 12(b)(6) stage, without the benefit of discovery, (156) it ishard to imagine another way that plaintiffs might plead thedefendant-company's mental state with the sufficient particularitythat the PSLRA demands. (157) Plaintiffs often rely on methods forcourts to infer scienter or impute knowledge. Two popular methodsinclude the "collective scienter" theory and the "coreoperations inference." Under the collective scienter theory, or"group pleading doctrine," a court will impute scienter toofficers and directors if they had day-to-day control or involvement inregular company operations and misstatements appeared in group-publisheddocuments, including annual reports and press releases. (158) This meansa plaintiff can show a defendant-company acted with scienter withoutspecifically naming the persons who concocted and disseminated thefraud. (159) Although most courts have rejected this method of imputingknowledge--finding it inconsistent with the PSLRA's requirementthat plaintiffs allege facts with particularity (160)--it is accepted insome circuits. (161)

Similarly, the core operations inference suggests the defendantacted with scienter if the misrepresentation concerns a "coreoperation" of the defendant's business. (162) Officers can beassumed to know the "facts critical to a business's coreoperations or to an important transaction that would affect acompany's performance." (163) By way of example,

 [s]uppose General Motors announced that it had sold one million SUVs in 2006, and the actual number was zero. There would be a strong inference of corporate scienter, since so dramatic an announcement would have been approved by corporate officials sufficiently knowledgeable about the company to know that the announcement was false. (164)

Both the collective scienter and the core operations theories leadto the inference that the defendant must have known the factssurrounding the misstatement because it would be absurd to suggestotherwise--or at the very least, it would suggest the defendants werenegligent in their ignorance. (165)

In Merck, the Court left open the possibility that defendants coulduse these methods to their advantage. The Court's marriagehypothetical implies that it would be absurd to suggest that there arecertain statements made without knowledge of their falsity. (166)

And if plaintiffs can invoke these methods to impute scienter todefendants, nothing prevents defendants from doing so as well. (187)Thus, defendants may point to earlier misrepresentations and argue thatthese statements concerned a "core operation" of thecompany's business and that scienter could have been inferredtherefrom. For example, if GM announces in 2006 that the number of carsit sold was one million when the actual number was zero, under the"core operations" inference this constitutes scienter that areasonable investor would be aware of--even though the plaintiffs maynot actually have discovered that this statement was fraudulent until2010.

2. The Pleading Game Plaintiffs Cannot Win

There is another reason to be suspect of Merck: it creates apleading trap for plaintiffs that forces them to concede essential factsand sets their claims up for resolution on a motion to dismiss. TheCourt's decision does not address this pleading issue. Omittingscienter from the statute of limitations inquiry may have beenbeneficial to plaintiffs as they could hide behind the vagueness of theinquiry-notice standard. But now, parties will argue over the precisepoint at which a reasonably diligent plaintiff would have piecedtogether enough information sufficient to show scienter.

First, although the defendant bears the burden of proving thestatute of limitations issue as an affirmative defense, (168) scienteris an element of the plaintiffs case-in-chief, which the plaintiff mustallege and prove. (169) Therefore, the plaintiff cannot fend off astatute of limitations defense by arguing that no evidence of scienterever arose. The plaintiff must indicate some point in time at which theplaintiff discovered evidence of scienter. (170)

Moreover, defendants control points of contention regardingscienter as they raise the statute of limitations issue. A defendant maypoint to an earlier misrepresentation about the company's flagshipproduct and argue that under the "core operations" inference,the plaintiff should have inferred scienter, thereby triggering thestatute of limitations. (171) To keep the limitations period fromrunning, plaintiffs must concede--assuming they can--that themisrepresentation did not suggest that the defendant acted with scienterand thus was not actionable securities fraud. And so theplaintiffs' very allegations will be used against them. (172)

Even still, plaintiffs must point to some evidence that thedefendant acted with scienter or they will not have filed their claim ingood faith. Forcing plaintiffs to point to an "aha! moment" orthe "smoking gun" of fraud will likely set the claim up forready dismissal at the Rule 12(b)(6) stage for two reasons. First,solitary events as evidence of the defendant's mental state oftenprove unsuccessful. To illustrate, one of the more common waysplaintiffs attempt to allege scienter is to allege that the defendantshad "motive and opportunity"--for example, that the defendantsmade misrepresentations to sell their own shares at a profit and thatthis trading pattern was suspicious or unusually out of line with priortrading practices. (173) But the Supreme Court in Tellabs, Inc. v. MakorIssues & Rights, Ltd. stated that courts must consider all the factstaken collectively--not whether any individual allegation, scrutinizedin isolation, evidences scienter. (174) Thus, courts such as the ThirdCircuit, which had previously allowed a plaintiff to plead scienter byalleging that the defendant had "motive and opportunity" tocommit stock fraud, have since rejected this approach. (175) Rather,scienter is a conclusion dependent on a variety of factors, including(1) the materiality and scale of the fraud; (2) whether the allegationsinvolve violations of generally accepted accounting principles (176) orthe company's own accounting policies; (3) whether the SEC or someother party brought an action alleging the same fraudulent conduct; and(4) whether the defendant had ready access to information that wouldshow that the public statements were not accurate. (177) If plaintiffscabin their scienter allegations, they will lack the ability to paintthe compelling mosaic necessary to show the defendant's fraudulentintent.

Second, securities fraud plaintiffs must allege why eachmisstatement would have been false or misleading at the time theplaintiffs allege that the misstatement was made. (178) Merely allegingthat defendants made misstatements and then showing in hindsight thatthey were false does not satisfy the PSLRA's particularityrequirement. (179) This concept is commonly referred to as the generalprohibition against pleading "fraud by hindsight." (180)Plaintiffs must have "specific allegations showing that the[d]efendants either knew of or recklessly disregarded the falsity oftheir own statements at the time the statements were made." (181)Without these specific allegations, the fact that the defendants'statements later turned out to be false is irrelevant, and courts willrefuse to find scienter because it would be the equivalent of findingfraud by hindsight. (182) Forcing plaintiffs to admit that earliermisrepresentations were not made with the requisite scienter may causeplaintiffs to fall dangerously close to alleging fraud by hindsight.(183)

When a defendant raises the statute of limitations defense, it is alose-lose situation for plaintiffs: either defeat the statute oflimitations defense by conceding that previous events did not establishthe defendant's culpable state of mind and thus expose the case toready dismissal; or lose on the statute of limitations defense and beforever barred from suit. (184) Further, if the plaintiffs file theircomplaint before the date of the event that they claim providedsufficient evidence of scienter, they risk Rule 11 sanctions. WhenCongress enacted the PSLRA, it also enacted a heightened Rule 11provision that required courts to issue findings that the attorneys andparties complied with Rule 11's requirement that the allegationscontained existing evidentiary support. (185) If plaintiffs defendagainst the statute of limitations and argue that certain facts did notgive rise to actionable securities fraud even though they had filed suitat the time those events occurred, sanctions would be appropriate.Consider the exchange that took place at oral argument in Merck betweenplaintiffs' counsel and the Justices. Counsel suggested that theplaintiffs first found sufficient evidence of scienter in 2004 when theWall Street Journal published internal e-mails from Merck executivesstating that they wanted to keep the side effects of Vioxx secret toenhance the drug's profitability. (186) But the plaintiffs filedtheir complaint in 2003, before this article was published. (187)Justice Sotomayor then questioned, "[s]o you are admitting that youfiled an improper complaint, that you didn't have a ... good faithbasis for the complaint you filed?" (188)

As shown, Merck contains several pleading pitfalls forplaintiff-investors. Artful pleading will become paramount in casesinvolving the statute of limitations. Plaintiffs must be careful toretain the allegations that are necessary to make a "cogent and ...compelling" case that the defendant-company acted with scienter,(l89) avoid fraud by hindsight and sanctions, and defeat the statute oflimitations.

3. Failing To Achieve Uniformity in the Statute of Limitations

Another detriment of Merck is that it fails to achieve the muchsought-after uniformity in the statute of limitations for securitiesfraud. In Lamp f, the Supreme Court adopted a uniform statute oflimitations, concluding that "the federal interests inpredictability and judicial economy counsel[ed]" in favor of auniform rule in the context of claims under section 10(b) and Rule10b-5. (190) Merck ended the divide over what "discovery"means and what "facts constitut[e] the violation," (191) butsubstituted one circuit split for another by incorporating scienter.(192) The Supreme Court has consistently dodged the question of whatscienter means, (193) and the federal appellate courts have been farfrom uniform in their approach. (194) Now, plaintiffs seeking to avoidthe statute of limitations defense may seek out those circuits withstringent scienter standards so they may successfully argue that theydid not have notice of that claim.

In sum, Merck is plaintiff friendly insofar as it could have beenworse for plaintiff-investors. Merck still presents substantialobstacles for plaintiffs in overcoming the statute of limitationsdefense. But what then is the answer? What could the Court have done?Part III.B argues that the remedy lies in abolishing the statute oflimitations.

B. The Illusory Benefits to a Discovery Provision

The statute of limitations and its statute of repose involve adelicate balance: "too much emphasis on the statute of limitationscan precipitate premature and groundless suits, as plaintiffs rush tobeat the deadline without being able to obtain good evidence of fraud;and the ... statute of repose gives defendants a definite limit beyondwhich they needn't fear being sued." (195) But too littleemphasis would enable investors to wait to see whether a poorlyperformed stock recovered, reap investment profits if it did, and suefor damages if it did not. (196) This mantra has sustained the statuteof limitations for section 10(b) and Rule 10b-5. When its discoveryprovision is scrutinized, however, its usefulness is questionable. Asthis Part shows, the practical realities of securities fraud litigationalready encourage prompt filing and the securities laws already containmany more effective features that deter dilatory conduct by plaintiffs.(197) Moreover, securities fraud is complex and difficult to discover.It is more likely that plaintiff-investors did not know about the fraud,rather than that they sat on the information and refrained from filingsuit. (198) Further, this Part demonstrates that the statute oflimitations imposes an empty procedural cost on parties and the judicialsystem. (199)

1. The Practical Realities of Securities Litigation and PromptFiling

An essential feature of any statute of limitations that accruesupon discovery is that it encourages the prompt filing of a lawsuit.(200) Prompt filing achieves several laudable goals. First, promptfiling enhances the accuracy of evidence because evidence deterioratesover time. (201) Second, prompt filing monitors the plaintiff'sconduct by "making it harder ... to file claims based on evidencewhose accuracy cannot be checked." (202) Third, prompt filingdeters defendant misconduct by enforcing the substantive law. (203) Theprivate rights of action under the securities laws supplement theenforcement powers of the SEC and DOJ. (204) These private attorneysgeneral threaten defendants into compliance with the securities laws,and their legitimacy is bolstered by their deterrent effect. (205)"Given that plaintiffs are often relied on as private attorneysgeneral to enforce substantive rights, a policy requiring plaintiffs tofile quickly enhances deterrence objectives." (206)

But a statute of limitations that accrues upon discovery isunnecessary to achieve these goals. As observed by the faculty at lawand business schools as amici curiae in Merck, plaintiff-investorsalready have incentives to investigate immediately the possibility offraud, regardless of the length of the statute of limitations or whenthe time limit is triggered. (207) In fact, when Congress enacted thePSLRA, it was concerned that plaintiffs had too much incentive to raceto court. (208) Several features of securities litigation motivateplaintiffs to file early. First, the presence of institutional investorsas lead plaintiffs, which has increased under the PSLRA, (209)encourages plaintiffs to investigate and file because theseinstitutional investors often have sufficient resources to conduct theirown prefiling investigation. (210) If a firm delays its investigation,it may miss a chance to serve as lead counsel. (211) And the frequencyof participation by institutional investors as lead plaintiff has beenincreasing. (212) In 2009, institutional investors served as leadplaintiff in 65 percent of the securities fraud class actions thatsettled--the highest proportion to date. (213) Also, by employingconstructive discovery, the Court further reduced the risk of plaintiffinactivity--the clock begins when a reasonable investor would havediscovered the fraud. (214)

Second, filing early correlates with a stronger likelihood ofsurviving a Rule 12(b)(6) motion to dismiss. Historically, securitiesfraud class actions that have longer filing lags are dismissed at ahigher rate than class actions with shorter filing lags. (215) Forexample,

 [b]etween 1996 and 2006, 55 percent of the filings with a lag of more than a year have been dismissed, compared to 42 percent dismissal rate for filings with a lag between one year and six months and 36 percent for filings with a lag of less than six months. (216)

Third, any delay comes at the cost of fading memories, lostdocuments, and unavailable witnesses to both defendants and plaintiffs.(217) What is worse still, the Senate Committee on the Judiciary notedin its report on SOX that "it only takes a few seconds to warm upthe shredder," and any delay invites defendants to take steps toconceal their deceit. (218) Plaintiffs have the burden of satisfying theheightened pleading standards of the PSLRA--that they allege all factswith particularity and a strong inference of scienter. (219) Plaintiffswho delay may find themselves without the time needed to satisfy theserigorous demands. (220) Moreover, securities fraud cases are so complexthat an expert and a regression analysis of the stock price'sreaction are indispensable tools to prosecuting a securities case, somuch so that these tools have become intertwined with the substantivelaw of securities fraud itself. (221) Marshaling this evidence takestime, and plaintiffs are not likely to file first and amend later, whichis a risky strategy especially given that the liberal amendment policyseems curtailed in securities litigation. (222)

Two final points: failure to meet the statute of limitations islikely to be malpractice in many situations, (223) and under ourproposal, section 10(b) and Rule 10b-5 cases still retain a statute ofrepose to encourage investors to investigate immediately. (224) Astatute of repose limits defendants' liability by limiting the timeduring which a cause of action can arise. (225) The Supreme Court inMerck pointed specifically to the statute of repose to alleviatedefendants' fears that a lax statute of limitations would give riseto stale claims or subject them to liability for acts taken long ago.(226)

Not only are there sufficient mechanisms to encourage early filing,but the securities laws and the practical realities of securitieslitigation also contain many safeguards that prevent fraud by theplaintiffs' attorneys. First, the PSLRA mandated that districtcourts determine whether the attorneys complied with Rule 11'srequirements. (227) Second, the PSLRA's heightened pleadingstandard forces plaintiffs to tip their hand and show what evidence theyhave to establish a claim. (228) Last, attorneys intuitively seek toavoid the reputation costs that result from fabricating allegations.(229) Reputation influences behavior, (230) and in securitieslitigation, a highly specialized practice area, (231) an attorney whofabricates allegations would develop a reputation for dishonesty amongother attorneys, institutional investors and other potential plaintiffs,and the courts, all of which makes future representation difficult.(232) Moreover, a consequence of a practice area with highlysophisticated attorneys representing victims in a discovery rulejurisdiction is that lawyers promptly file, knowing that the safestcourse of action is to file suit as soon as possible. (233)

2. The Discovery of Merited Section 10(b) and Rule 10b-5 Claims

The discovery provision in the statute of limitations purports topenalize securities fraud plaintiffs who sit on their rights and wait tofile suit. (234) But this justification assumes that plaintiff-investorswere aware of the fraud and their attorneys intentionally waited to filesuit. This assumption is misguided. It is more likely that plaintiffsdid not know about the fraud, rather than that they sat on their handswith the information. (235)

First, securities fraud, by its nature, is secretive; it isconcealment of the truth. (236) Justice Kennedy observed in Lampf that

 [t]he real burden on most investors ... is the initial matter of discovering whether a violation of the securities laws occurred at all. This is particularly the case for victims of the classic fraud-like case that often arises under [section] 10(b).... The most extensive and corrupt schemes may not be discovered within the time allowed for bringing an express cause of action under the 1934 Act. (237)

Enron's fraud, for example, announced in 2001, traced back to1997. (238) And securities fraud is often uncovered through anunconventional investigation or happenstance. The financial crisisexposed Bernard Madoff's massive Ponzi scheme. (239) Also, a recentstudy found that securities fraud is uncovered by employees,nonfinancial-market regulators, and the media more often thantraditional watchdogs such as the SEC, auditors, analysts, or bond orequity holders. (240) This outcome is somewhat expected becauseincreasing investment options and an increased holding of diversifiedportfolios has made sifting through the incredible amount of informationcompanies pour out daily difficult. (241)

Second, meritorious securities fraud claims still must allege a"strong inference" of scienter with sufficient particularity,(242) and crafting this kind of allegation takes time. Discovery ofscienter is particularly difficult because the standard for determiningscienter is less than clear. (243) Scholars disagree whether acorporation is a collective of persons, whose mental state can beinferred from those persons, (244) or whether the corporation has anindependent existence and culture separate from its individual employeeswith a state of mind all its own. (245) At the individual level,"because of [the] limitations on mind reading," state of mindmust be inferred from conduct rather than determined directly. (246) Thefederal appellate courts have adopted different tests to allegescienter, adding further confusion to the mix. (247) Tellabs held that a"strong inference" of scienter depends on a balancing of bothculpable and nonculpable inferences of scienter--a weighing of competingprobabilities. (248) There is no clear test for scienter; the outcome ofthis weighing is subject to the district judge. (249)

Further, the PSLRA requires that all allegations be alleged"with particularity," (250) without the benefit of discovery.(251) Professor Charles W. Murdock highlights four waysplaintiff-investors can acquire information this detailed:

(1) the board of directors commissions a special study ... (2) thecompany goes into bankruptcy and the bankruptcy court orders a specialstudy; (3) the accountants decide to restate the company'sfinancials; or (4) the plaintiff locates an informant from within thecompany who has knowledge of the relevant facts. (252)

But each path proves difficult for plaintiffs. First, both theboard of directors--even when comprised of "independent"directors--and the company's auditors and analysts are uniquelysusceptible to capture, (253) and they are often likewise named asdefendants in the securities fraud complaint. (254) Second, althoughmaterials prepared in the context of a company's bankruptcy--forexample, reports by the bankruptcy examiner, depositions, or otherdiscovery--may provide a wealth of detailed information, courts refuseto grant plaintiffs access to this information because it wouldcircumvent the PSLRA's discovery stay and turn bankruptcy materialsinto tools that fuel litigation. (255) And if the bankruptcy case ishandled poorly, as it was for Enron, plaintiffs may not be able to waitfor a bankruptcy examiner's report. (256) Third, the publication ofa financial restatement, without more, is not enough to create a stronginference of scienter. (257) And fourth, practical difficulties aside,(258) the viability of pleading securities fraud claims with allegationsfrom confidential informants has been severely undermined since Tellabs.(259)

Barring a securities fraud claim premised on the assumption thatthe plaintiffs discovered or should have discovered the fraud muchearlier belies the realities of securities litigation. Plaintiffs witheven the most merited claim must still "thread the eye of a needlemade smaller and smaller over the years by judicial decree andcongressional action." (260) It takes time to craft a complaint andcomplete an investigation without discovery that will surpass thesehurdles.

3. The Discovery Provision's Increased Costs Associated withSecurities Litigation

Another justification for the statute of limitations in general isthat it reduces the volume of litigation. (261) Reducing the volume offrivolous securities litigation has been an imperative of Congress as oflate. (262) But the incorporation of the discovery provision actuallythwarts this aim and increases the costs associated with litigatingthese already colossal claims.

The statute of limitations does not prevent a securities lawsuitfrom being filed; rather it reduces the incentive to do so by providingdefendants with a defense. (263) "The effectiveness of this defensein reducing the number of untimely filings depends on theplaintiff's assessment of the futility of pursuing the claim, whichin turn depends on both the certainty and the severity of thesanction." (264) But Merck's discovery standard introducesuncertainty with the application of the statute of limitations. First,Merck has incorporated the pliable concept of constructive discovery,(265) which expands the scope of legitimate disagreement over an issueunrelated to the merits, making it less certain that the claim isbarred. (266) Additionally, Merck requires that plaintiffs have, orshould have, discovered evidence of scienter, (267) which is a highlycontextualized inquiry that is often proved with circ*mstantialevidence, (268) making it even less certain that the claim is barred.(269) Second, Merck's constructive discovery standard justcompounds a problem already existent with sanctions for statute oflimitations in general: although threatened by the loss of the claim toa successful statute of limitations defense, Rule 11 sanctions are notwarranted for filing a complaint past the statute of limitations. (270)Because the statute of limitations is an affirmative defense (271) thatcan be waived if not raised, (272) one court has held that a claim filedafter the limitation period has expired cannot be considered a frivolousclaim. (273) Sanctions would also be less appropriate in securitieslitigation because to conclude that the statute was triggered, the courtmust find evidence of securities fraud. (274) Thus, a court would imposeRule 11 sanctions against plaintiffs where the court found evidence ofsecurities fraud, which is incoherent.

"Another consideration is that, given the complexity ofexisting limitation rules and the manner in which they have evolved, ithas become increasingly difficult to dispose of time-barred claims as athreshold or preliminary matter (that is, by demurrer or summaryjudgment) rather than at trial." (275) Before Merck, the federalappellate courts, using the inquiry-notice standard, readily stated thatwhether discovery of facts constituting the violation should be imputedto plaintiffs is a fact-intensive inquiry, typically left for a jury.(276) There is no reason why the constructive discovery standard setforth in Merck should be any less so:

 The facts constituting such notice must be sufficiently probative of fraud--sufficiently advanced beyond the stage of a mere suspicion, sufficiently confirmed or substantiated--not only to incite the victim to investigate but also to enable him to tie up any loose ends and complete the investigation in time to file a timely suit. (277)

This increases the plaintiffs' chance of recovery andincreases the time and resources the judiciary must spend to determinethe timeliness of these claims. (278) To make matters worse, thisdetermination expends resources that in no way contribute to meritsresolution--it is a pure procedural cost. (279) Merck, though, hasincorporated scienter, which the Supreme Court has encouraged resolvingat the Rule 12(b)(6) motion to dismiss stage, (280) and this mayencourage courts to resolve this issue when considering motions todismiss.

Last, increasing procedural barriers to securities fraud actions"may contribute to rising securities litigation costs and risingsettlement values." (281) Imposing procedural costs on plaintiffsin

response to erroneously perceived abuses--in this case, themisperception that the discovery provision encourages prompt filing,prevents fraud by plaintiffs, and conserves expenses for defendingtime-barred claims--does not stop plaintiffs from bringing suit; ratherplaintiffs compensate for the increased risk of dismissal by bringingclaims with higher damages. (282) Discovery costs and other pre-trialcosts then rise to meet the rising level of claimed damages as thesecosts are proportional to the size of the claim. (283) Therefore, thestatute of limitations, as it is a procedural cost with no correspondingbenefit, exacerbates the costs of litigation and settlement rather thancurbs them.

IV. MARKET FUNCTIONS, BEHAVIORAL ECONOMICS, AND THE CASE FORRETAINING REPOSE FOR SECURITIES FRAUD ACTIONS

The bulk of scholarship that focuses on reforming various statutesof limitations advocates abolishing the limitation period entirely.(284) We agree with the general critique that these scholars level atstatutes of limitations, but securities litigation presents a uniqueproblem that justifies some measure of repose. Thus, we argue that astatute of limitations that accrues upon discovery should be abolishedfor section 10(b) and Rule 10b-5 claims, but repose should be retained.

As shown by Merck, even a pro-plaintiff interpretation of thediscovery provision in the statute of limitations impedes meritoriouscases. (285) The cost incurred by the discovery provision comes with norelated benefit. Securities litigants already have significant incentiveto investigate and file promptly. (286) The discovery provision rests onthe erroneous assumption that plaintiffs are sitting on their hands withalready discovered claims, but this ignores the myriad hurdlesplaintiffs face in securities litigation even before discovery. (287)Rather, the discovery provision merely increases procedural costs forthe parties and the judicial system. (288) Nevertheless, contrary toexisting scholarship, securities fraud needs repose. Part IV.A justifiesrepose from securities fraud due to insights from behavioral economicsand because of the impact securities fraud litigation has on the settledeconomic expectations of nonculpable economic actors. Part IV.B thenaddresses the question that follows from this argument: assuming reposeis justified, what should it look like?

A. Loss Aversion and Nonculpable Market Participants

Some scholars have advocated for discarding the statute oflimitations and repose completely. (289) Other scholars proposeabolishing limitations periods but offer alternatives to extract a"price" for delayed filing. For example, Judge Wistrichproposes an "incremental approach" that "penalize[s]plaintiffs for delay in filing by gradually decreasing the value oftheir claims." (290) Professors Ehud Guttel and Michael T. Novickhave proposed jettisoning the all-or-nothing structure of statutes oflimitation and instead "extract[ing] a price that compensates thedefendant for his evidentiary loss. This price consists of the totaldamages claimed by the plaintiff, discounted by the probabilistic valueof the lost evidence." (291)

These proposals have promise and may be justified in othercontexts, but repose is needed for securities fraud litigation. Congresshas already expressed its desire that liability for securities fraudends at some point. (292) Repose, although draconian in result, isjustified by the phenomenon of loss aversion and the impact securitieslitigation has on other market participants. (293)

First, the concept of loss aversion as explained in behavioraleconomics means that persons are more motivated by the prospect of aloss than by a gain. (294) "The subjective utility of losing a goodexceeds that of gaining it." (295) Thus, "we would have toreward plaintiffs for filing on time by doubling or tripling the valueof their claims merely to achieve the same effect that we presentlyachieve by extinguishing the value of their claims." (296) Insecurities litigation, where damages are already bemoaned as excessive,(297) tripling the value of the plaintiffs' claim would imposeexorbitant costs. Furthermore, when Congress enacted the PSLRA, itspecifically removed securities fraud as a RICO predicate and thuseliminated securities fraud plaintiffs' ability to recover tripletheir damages. (298) Accepting the premises that people are loss averseand that Congress has already eschewed a regulatory scheme that triplesplaintiffs' reward for bringing a securities fraud claim, barringsecurities fraud actions after a set time will both incentivize promptfiling and remain consistent with Congress's intent.

Second, repose protects settled economic expectations of not justthe defendant, but a multitude of economic actors. (299) Repose protectsnonculpable market players such as investors, employees, and lenders, toname a few. Professor Ochoa and Judge Wistrich capture the essence ofthis argument:

 [S]uppose a corporation markets a drug that is discovered twenty years later to have caused harmful, long-term side effects. Suppose further that the corporation would be bankrupted by the resulting liability. There is no denying the legitimacy of the victim's claims for compensation. On the other hand, during those twenty years, thousands of people may have invested in the corporation, hundreds of people may have accepted jobs with it, dozens of lenders may have extended credit to it, and scores of firms may have entered business partnerships with it. As a result of the corporation's liability, those investments may be forfeited, those jobs may be lost, those loans may not be repaid, and those business partnerships may collapse. While there may be justice in the destruction of the corporate defendant, as time passes, the investors, employees, lenders, and business partners acquire reliance interests that may be disrupted by, and that must be weighed against, the victims' claims to compensation. (300)

This concern is more apparent in securities fraud where scholarssuggest that the costs of securities class actions--both the settlementand the litigation expenses of both sides--fall largely on the defendantcorporation, and so its shareholders ultimately bear these costsindirectly. (301) This "circularity" problem, though, occursonly at the margins--most of the class recovery does not come from theclass members themselves. (302)

B. Event-Accrual and the Five-Year Statute of Repose

Assuming that repose is necessary, but a statute of limitationsthat is triggered upon discovery should be abolished, what should thelimitations period for securities fraud look like? Part IV.B proposes afive-year limitations period that accrues upon the happening of thefraud.

To begin, we acknowledge that any cut-off date will be arbitrary,(303) but also note that Congress has already expressed a value judgmentthat repose for section 10(b) and Rule 10b-5 is appropriate after eithertwo years or five years. (304) So we accept these periods as a startingpoint. Further, there are already settled expectations that, at thelatest, no liability attaches after five years in Congress's plan.This is important because adherence to the five-year period does notincrease the risk that defendants will take strategic advantage of thisabsolute bar to liability. Thus, Congress should retain only the longerfive-year statute of repose that is triggered upon the happening of thefraud (event-accrual).

The five-year period is also preferable to the two-year period asit provides plaintiffs the necessary time to discover the claim anddevelop the complaint. (305) Resolving securities fraud claims on theirmerits, as opposed to procedural grounds, is consistent with the purposeof the judiciary to resolve disputes based on substantive law. Itcomports with notions of fairness and due process, and preserves thedignitary value of the judiciary by affording an aggrieved person aright to be heard. (306) Additionally, a longer period of liabilityfurthers the enforcement of the securities laws, which in particulardepends on private attorneys general for holistic enforcement. (307) AsProfessor Ochoa and Judge Wistrich observe, the loss of a valid claimbecause of the statute of limitations results in underenforcement of thesubstantive law. (308) Adopting a longer limitations period is moreconsistent with promoting the resolution of these claims on theirmerits.

Next, event-accrual is preferable to discovery-accrual for severalreasons. Under discovery-based accrual, courts conclude that thedefendants have committed an actionable wrong, but deny any remedy. Asthe majority in the Third Circuit's Merck decision remarked aboutthe dissent's conclusion that there were actionablemisrepresentations that precluded litigation, "It is ironic thatthe dissent, although noting what might be viewed as Merck'smisrepresentations, would apply the statute of limitations to depriveplaintiffs of the opportunity to prove a viable case against Merck forsuch misrepresentations." (309) This result is absurd; the logic istortured. Event-accrual avoids this nonsensical conclusion.

Moreover, event-accrual achieves all the laudable aims that astatute of limitations with discovery-accrual misses. Event-accrualprovides a bright-line rule that is simple in application, which hasmany benefits. (310) A bright-line rule removes the uncertainty thatplagues Merck's "discovery" standard. (311) Once the timeset forth in a statute of repose is up, plaintiffs can be certain thattheir claims are time-barred. In turn, sanctions become more effectivebecause plaintiffs will have lost any colorable argument that a claimpast the statute of repose was made in good faith. (312) Thus,event-accrual will greatly influence plaintiffs' decisions totimely file. In any event, if claims are filed that lie outside thestatute of repose, they can be easily dispensed with by the judiciary atthe preliminary stage, thus saving the courts and the parties costs oflater litigation. (313)

One final note, a longer limitations period stems the erosion ofthe private 10b-5 right of action through procedural rules. Ifsecurities fraud litigation is disfavored, the substantive law should bechanged to restrict its availability or eliminate the private 10b-5right of action altogether rather than hamper plaintiff-investors with ashort, arbitrary cutoff date. (314) Congress and the courts have erectedbarriers in class certification, pleading, and summary judgment, all thewhile maintaining the visage of supporting investors' rights torecover for stock fraud. (315) But these procedural barriers areimproperly used to "achieve indirectly what could not be achieveddirectly." (316)

CONCLUSION

Even when the discovery provision in the statute of limitations forsection 10(b) and Rule 10b-5 claims is interpreted in favor ofplaintiff-investors, as was the case in Merck, it still creates pleadingtraps for the unwary, introduces a new ground to forum shop, and isotherwise harmful to plaintiff-investors. Discovery-accrual serves nolegitimate goal that a statute of repose that accrues upon the happeningof the fraud cannot better achieve. Discovery-accrual ignores therealities of securities litigation. Plaintiffs are already significantlymotivated to investigate and file, and penalizing them for sitting ontheir hands erroneously assumes that the plaintiffs discovered, or couldhave discovered, facts sufficient to survive the onerous pleadingrequirements of the PSLRA in the first instance. The discovery provisioncreates procedural costs borne by plaintiff-investors, defendants, andthe courts with no added benefit. Thus, for section 10(b) and Rule10b-5, the discovery provision should be abolished. Only the five-yearstatute of repose, which starts upon the defendant's commission ofthe fraud, should be retained. This bright-line rule prevents the filingof time-barred claims, makes the availability of sanctions certain, andcan be readily resolved before a jury must be empanelled. Further, inSOX, Congress saw fit to provide a five-year measure of repose. (317)This time period alone sufficiently enables plaintiffs to filemeritorious claims, but also protects settled economic expectations.

(1.) Wood v. Carpenter, 101 U.S. 135, 139 (1879). Nevertheless, thecurrent climate of regulatory reform provides the opportunity forreevaluation. See Oliver Wendell Holmes, The Path of the Law, 10 HARV.L. REV. 457, 469 (1897) ("It is revolting to have no better reasonfor a rule of law than that so it was laid down in the time of Henry IV.It is still more revolting if the grounds upon which it was laid downhave vanished long since, and the rule simply persists from blindimitation of the past.").

(2.) THE QUOTABLE JUDGE POSNER: SELECTIONS FROM TWENTY-FIVE YEARSOF JUDICIAL OPINIONS 158 (Robert F. Blomquist ed., 2010) (quoting Taylorv. Meirick, 712 F.2d 1112, 1119 (7th Cir. 1983)).

(3.) See, e.g., John R. Sand & Gravel Co. v. United States, 552U.S. 130, 133 (2008) ("Most statutes of limitations seek primarilyto protect defendants against stale or unduly delayed claims.");Day v. McDonough, 547 U.S. 198, 205-06 (2006) ("The ... statute oflimitation promotes judicial efficiency and conservation of judicialresources, [and] safeguards the accuracy of ... judgments by requiringresolution ... while the record is fresh.") (quoting Acosta v.Artuz, 221 F.3d 117, 123 (2d Cir. 2000)); Order of R.R. Telegraphers v.Ry. Express Agency, Inc., 321 U.S. 342, 348-49 (1944) ("Statutes oflimitation ... promote justice by preventing surprises through therevival of claims that have been allowed to slumber until evidence hasbeen lost, memories have faded, and witnesses have disappeared. Thetheory is that even if one has a just claim it is unjust not to put theadversary on notice to defend within the period of limitation and thatthe right to be free of stale claims in time comes to prevail over theright to prosecute them.").

(4.) See, e.g., Young v. United States, 535 U.S. 43, 47 (2002)(stating that all limitations periods provide "repose, eliminationof stale claims, and certainty about a plaintiff's opportunity forrecovery and a defendant's potentialliabilities") (quotingRotella v. Wood, 528 U.S. 549, 555 (2000)); Tulsa Profl CollectionServs., Inc. v. Pope, 485 U.S. 478, 486 (1988); Wood v. Carpenter, 101U.S. at 139 ("They promote repose by giving security and stabilityto human affairs.").

(5.) 130 S. Ct. 1784, 1789-90 (2010); see Securities Exchange Actof 1934 [section] 10, 15 U.S.C. [section][section] 78a-78nn (2006); 17C.F.R. [section] 240.10b-5 (2010); see also 28 U.S.C. [section] 1658(b)(providing that Section 10(b) and Rule 10b-5 private securities fraudactions "may be brought not later than the earlier of (1) 2 yearsafter the discovery of the facts constituting the violation; or (2) 5years after such violation").

(6.) Merck, 130 S. Ct. at 1789-90 (citing Ernst & Ernst v.Hochfelder, 425 U.S. 185, 194 n.12 (1976)).

(7.) 501 U.S. 350 (1991). See infra Part I.B (discussing theSupreme Court's Lampf decision and the lower federal appellatecourts' treatment of the statute of limitations).

(8.) See infra Part I. C (describing SO X, its accompanyingtwo-and-five-year structure, and how the federal appellate courtsfurther divided over its meaning).

(9.) 130 S. Ct. 1784 (2010); see infra Part II.A-B.

(10.) See infra Part III.A.1.

(11.) See infra Part III.A.2 (exploring the "pleadingtrap" Merck sets up for plaintiff-investors).

(12.) See infra Part III.A.3 (demonstrating that the circuits takevarying approaches in determining scienter).

(13.) See infra Part III.B.1.

(14.) See infra Part III.B.2 (showing that securities fraud isinherently secretive, complex, and difficult to detect).

(15.) See infra Part III.B.3 (observing that the statute oflimitations, as a procedural cost with no corresponding benefit, imposesunnecessary, additional costs on litigants).

(16.) See infra Part IV.

(17.) JOHN C. COFFEE, JR., GATEKEEPERS: THE PROFESSIONS ANDCORPORATE GOVERNANCE 80, 82 (2006) [hereinafter COFFEE, GATEKEEPERS];John C. Coffee, Jr., The Rise of Dispersed Ownership: The Roles of Lawand the State in the Separation of Ownership and Control, 111 YALE L.J.1, 25-39 (2001); see also ADOLF A. BERLE & GARDINER C. MEANS, THEMODERN CORPORATION AND PRIVATE PROPERTY 129 (rev. ed., Harcourt, Brace& World, Inc. 1968) (1932); John H. Biggs, Shareholder Democracy:The Roots of Activism and the Selection of Directors, 39 LOY. U. CHI.L.J. 493, 498 (2008) ("The Public Company Accounting OversightBoard ("PCAOB") estimates that [55] percent of Americanfamilies now own stock in public companies, mostly through their[Defined Contribution] plans and IRAs. Another large percentage ownstocks through their state and municipal multi-employer plans wherecontributions, taxes, and benefits are all determined, in great part, bythe investment results of the stocks held in public companies.").Some consider the separation of ownership and control the cause of therecent financial economic collapse; separating ownership from controlturned companies into objects of speculation and transferred financialrisk and, ultimately, responsibility, to shareholders. E.g., MICHAELLEWIS, THE BIG SHORT 263-64 (2010) ("The effect of turning apartnership into a corporation was to transfer the financial risk to theshareholders.... When the Wall Street investment bank screwed up badlyenough, its risks became the problem of the United Statesgovernment.").

(18.) COFFEE, GATEKEEPERS, supra note 17, at 82-83.

(19.) H.R.REP. NO. 105-803, at 2 (1998) (Conf. Rep.) (finding thatsecurities regulation has a dual aim of protecting investors andpromoting growth of financial markets); see also H.R. REP. NO. 104-369,at 31 (1995) (Conf. Rep.), reprinted in 1995 U.S.C.C.A.N. 730, 731(stating that the overriding purpose of the securities laws is toprotect investors and maintain confidence in the market so nationalsavings and investments may grow for the benefit of all).

(20.) E.g., Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551U.S. 308, 313 (2007) (recognizing that private actions are an"essential supplement to criminal prosecutions and civilenforcement actions brought, respectively, by the Department of Justiceand the Securities and Exchange Commission"); Dura Pharm., Inc. v.Broudo, 544 U.S. 336, 345 (2005) (finding that "the availability ofprivate securities fraud actions" acts to deter fraud and therebyhelps maintain "public confidence in the [securities]marketplace"); Basic Inc. v. Levinson, 485 U.S. 224, 231 (1988)(reaffirming that the private right of action "constitutes anessential tool for enforcement of the 1934 Act'srequirements"); Randall v. Loftsgaarden, 478 U.S. 647, 664 (1986)(noting "the deterrent value of private rights of action"under the securities laws); J.I. Case Co. v. Borak, 377 U.S. 426, 432(1964) ("Private enforcement ... provides a necessary supplement to[SEC] action.").

(21.) Ernst & Ernst v. Hochfelder, 425 U.S. 185, 195 (1976).

(22.) Securities Act of 1933 [section] 11, 15 U.S.C. [section] 77k(2006). Under the 1933 Act, purchasers may sue"participants"--the issuer, signers of the registrationstatement, directors and officers, underwriters, and otherprofessionals--by merely showing that the registration statementcontained a material misrepresentation or omission. E.g., In re ConstarInt'l Inc. Sec. Litig., 585 F.3d 774, 782-83 (3d Cir. 2009); APAExcelsior III LP v. Premiere Techs., Inc., 476 F.3d 1261, 1271 (11thCir. 2007); In re Daou Sys., Inc., 411 F.3d 1006, 1027 (9th Cir. 2005).Scienter is not required for a section 11 claim. Musick, Peeler &Garrett v. Employers Ins. of Wausau, 508 U.S. 286, 296 (1993). Thisheavy-handed form of liability is tempered by the defendant'saffirmative defense of due diligence, see Securities Act of 1933[section] 11(a)-(b), 15 U.S.C. [section] 77k(a)-(b), in which defendantsother than the issuer may avoid liability by proving that, after areasonable investigation, they had no grounds to believe that the partsof the registration statement attributed to them contained materialmisstatements or omissions. Securities Act of 1933 [section] 11, 15U.S.C. [section] 77k(b)(3); see also Herman & MacLean v. Huddleston,459 U.S. 375, 381-82 (1983); Escott v. Barchris Constr. Corp., 283 F.Supp. 643, 697-703 (S.D.N.Y. 1968).

(23.) Securities Act of 1933 [section] 12(a)(2), 15 U.S.C.[section] 77l(a)(2). A prospectus is "[a] printed document thatdescribes a [corporation's business] and that is distributed toprospective buyers or investors." BLACK'S LAW DICTIONARY 1342(9th ed. 2009). A plaintiff need only prove that the offeror or sellermade a material misstatement or omission; an offeror or seller issomeone who successfully solicits the purchase of securities motivatedat least by a desire to serve his own financial interests or those ofthe securities owner. Pinter v. Dahl, 486 U.S. 622, 642-43 (1988).

(24.) E.g., Miller v. Thane Int'l, Inc., 519 F.3d 879, 885(9th Cir. 2008), cert. denied, 129 S. Ct. 161 (2008); Benzon v. MorganStanley Distribs., Inc., 420 F.3d 598, 608 (6th Cir. 2005); In re AdamsGolf, Inc. Sec. Litig., 381 F.3d 267, 277 (3d Cir. 2004); Oxford AssetMgmt., Ltd. v. Jaharis, 297 F.3d 1182, 1189 (11th Cir. 2002); Gasner v.Bd. of Superintendents, 103 F.3d 351,356 (4th Cir. 1996).

(25.) Securities Act of 1933 [section] 13, 15 U.S.C. [section] 77m.

(26.) Id. (emphasis added).

(27.) Merck & Co. v. Reynolds, 130 S. Ct. 1784, 1801 (2010)(Scalia, J., concurring).

(28.) Securities Exchange Act of 1934, 15 U.S.C. [section] 78a.

(29.) Ernst & Ernst v. Hochfelder, 425 U.S. 185, 195 (1976).

(30.) SEC Rule 10b-5, 17 C.F.R. [section] 240.10b-5 (2010). In1946, for the first time, a court held that investors could bring aprivate action for violations of Rule 10b-5. Kardon v. Nat'l GypsumCo., 69 F. Supp. 512, 513-14 (E.D. Pa. 1946). According to the SupremeCourt, the implied private right of action under Rule 10b-5 is now"simply beyond peradventure." Herman & MacLean v.Huddleston, 459 U.S. 375, 380 (1983).

(31.) Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson,501 U.S. 350, 359 (1991).

(32.) See 15 U.S.C. [section][section] 78i(e), 78r(c), 78cc(b).

(33.) Id.

(34.) See infra Part I.B.

(35.) VICTOR E. SCHWARTZ ET AL., PROSSER, WADE AND SCHWARTZ'STORTS: CASES AND MATERIALS 617 (11th ed. 2005).

(36.) See, e.g., Ma v. Merrill Lynch, Pierce, Fenner & Smith,Inc., 597 F.3d 84, 88 n.4 (2d Cir. 2010); Tello v. Dean Witter Reynolds,Inc., 494 F.3d 956, 974 (11th Cir. 2007); Johnson v. Aljian, 490 F.3d778, 782 n.13 (9th Cir. 2007).

(37.) Ma, 597 F.3d at 88 n.4; see also Johnson, 490 F.3d at 781n.12.

(38.) Bridges v. United States, 346 U.S. 209, 230-31 (1953) (Reed,J., dissenting) ("Of course, statutes of limitation are statutes ofrepose.").

(39.) BLACK'S LAW DICTIONARY, supra note 23, at 1546.

(40.) Tyler T. Ochoa & Andrew J. Wistrich, The PuzzlingPurposes of Statutes of Limitation, 28 PAC. L.J. 453, 458, 460 (1997).Professor Ochoa and Judge Wistrich catalogue the following purposes ofstatutes of limitations: (1) to promote repose, which provides peace ofmind, avoids disrupting settled expectations, reduces uncertainty, andreduces protective measures and associated costs; (2) to minimize thedeterioration of evidence, and thereby ensure accurate fact-finding,prevent fraud, reduce litigation costs, and protect the integrity of thejudicial system; (3) to place defendants and plaintiffs on equalfooting; (4) to promote cultural values of diligence; (5) to encouragethe prompt enforcement of the substantive law; (6) to avoid theretrospective application of contemporary standards; and (7) to reducethe overall volume of litigation. Id. at 460-99.

(41.) See, e.g., 15 U.S.C. [section] 1681p (2006) (imposing a limitof two years from discovery of the violation, plus a statute of reposeat five years for violations of the Fair Credit Reporting Act); 29U.S.C. [section] 1113 (imposing a limit of three years from discovery ofan ERISA violation, plus a statute of repose at six years for breach offiduciary duty); 31 U.S.C. [section] 3731 (imposing a limit of threeyears from discovery of the violation, plus a statute of repose at sixyears for violations of the False Claims Act); see also Wike v. Vertrue,Inc., 566 F.3d 590, 595 (6th Cir. 2009) (recognizing that statutes oflimitations accrue on discovery and statutes of repose accrue on thehappening of the complained of event); Balam-Chuc v. Mukasey, 547 F.3d1044, 1049 (9th Cir. 2008) (same).

(42.) Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson,501 U.S. 350, 359 (1991).

(43.) The statute of limitations is expressly applicable tosections 11 and 12 of the 1933 Act. 15 U.S.C. [section] 77m.

(44.) A "blue-sky law" is a state statute thatestablishes "standards for offering and selling securities, thepurpose being to protect citizens from investing in fraudulent schemesor unsuitable companies." BLACK'S LAW DICTIONARY, supra note23, at 196.

(45.) THOMAS LEE HAZES, THE LAW OF SECURITIES REGULATION [section]12.16 (6th ed. 2009).

(46.) See, e.g., Bath v. Bushkin, Gaims, Gaines & Jonas, 913F.2d 817, 818-19 (10th Cir. 1990) (per curiam); Nesbit v. McNeil, 896F.2d 380, 384 (9th Cir. 1990); O'Hara v. Kovens, 625 F.2d 15, 17(4th Cir. 1980); Forrestal Vill., Inc. v. Graham, 551 F.2d 411, 413 (5thCir. 1977).

(47.) Norris v. Wirtz, 818 F.2d 1329, 1332 (7th Cir. 1987); seealso Jill E. Frisch, As Time Goes By: New Questions About the Statute ofLimitations for Rule 10b-5, 61 FORDHAM L. REV. $101, $103-04 (1993).

(48.) 843 F.2d 1537, 1543 (3d Cir. 1988) (en banc); see also CeresPartners v. Gel Assocs., 918 F.2d 349, 364 (2d Cir. 1990); Short v.Belleville Shoe Mfg. Co., 908 F.2d 1385, 1390-92 (7th Cir. 1990).

(49.) Data Access, 843 F.2dat 1549 ("The necessity for uniformfederal remediesin security cases would seem to demand recourse to auniform federal statute of limitations.").

(50.) Id.

(51.) Norris, 818 F.2d at 1332.

(52.) 501 U.S. 350, 361-62 (1991). The Supreme Court concluded thatsection 9(e) of the 1933 Act should apply to section 10(b) and Rule10b-5 claims because there was a need for uniformity, securities fraudactions are multi-state in nature, and section 9(e) shares the samepurpose--protecting investors against manipulation of stock prices--andsimilar elements with section 10(b) and Rule 10b-5. Id. at 360-61.

(53.) E.g., Lyman Johnson, Securities Fraud and the Mirage ofRepose, 1992 WIS. L. REV. 607, 620, 625; Lewis D. Lowenfels & AlanR. Bromberg, SEC Rule 10b-5 and Its New Statute of Limitations: TheCircuits Defy the Supreme Court, 51 BUS. LAW. 309, 313, 333-34 (1996);Roy M. Van Cleave, The Federal Securities Acts' One-Year InquiryNotice Statute of Limitations: Are the Scales Tipped Against FraudClaimants?, 22 J. CORP. L. 79, 80-81 (1996); Richard H. Walker & J.Gordon Seymour, Recent Judicial and Legislative Developments Affectingthe Private Securities Fraud Class Action, 40 ARIZ. L. REV. 1003, 1009(1998).

(54.) See Gruber v. Price Waterhouse, 911F.2d 960, 964 n.4 (3d Cir.1990) (stating that the Third Circuit's Data Access decision doesnot provide for inquiry notice); see also In re NAHC, Inc. Sec. Litig.,306 F.3d 1314, 1318 (3d Cir. 2002) (recognizing that the Third Circuithad not yet precisely decided the statute of limitations issue); Berryv. Valence Tech., Inc., 175 F.3d 699, 704 (9th Cir. 1999) (expressingdoubts that the inquiry-notice standard survived Lampf).

(55.) E.g., Fin. Sec. Assurance, Inc. v. Stephens, Inc., 450 F.3d1257, 1267-68 (11th Cir. 2006); Shah v. Meeker, 435 F.3d 244, 249 (2dCir. 2006); Glaser v. Enzo Biochem, Inc., 126 F. App'x 593, 597(4th Cir. 2005); New Eng. Health Care Employees Pension Fund v. Ernst& Young, L.L.P., 336 F.3d 495, 500 (6th Cir. 2003); LC CapitalPartners, LP v. Frontier Ins. Group, Inc., 318 F.3d 148, 154 (2d Cir.2003); In re NAHC, Inc. Sec. Litig., 306 F.3d at 1325; Young v. Lepone,305 F.3d 1, 8 (lst Cir. 2002); Theoharous v. Fong, 256 F.3d 1219, 1228(1lth Cir. 2001); Ritchey v. Horner, 244 F.3d 635, 638-39 (8th Cir.2001); Sterlin v. Biomune Sys., 154 F.3d 1191, 1199-1200 (10th Cir.1998); Kauthar SDN BHD v. Sternberg, 149 F.3d 659, 670 (7th Cir. 1998);Marks v. CDW Computer Ctrs., Inc., 122 F.3d 363, 367 (7th Cir. 1997);Dodds v. Cigna Sec., Inc., 12 F.3d 346, 350 (2d Cir. 1993); Topalian v.Ehrman, 954 F.2d 1125, 1134-35 (5th Cir. 1992).

(56.) Brief for the Petitioners at 20, Merck & Co. v. Reynolds,130 S. Ct. 1784 (2010) (No. 08-905), 2009 WL 2459589.

(57.) E.g., New Eng. Health Care Employees Pension Fund, 336 F.3dat 499; Sterlin, 154 F.3d at 1202; Tregenza v. Great Am. Commc'nsCo., 12 F.3d 717, 722 (7th Cir. 1993); Brumbaugh v. Princeton Partners,985 F.2d 157, 163 (4th Cir. 1993).

(58.) Sarah S. Gold & Richard L. Spinogatti, Revisiting theLimitations Period for Securities Fraud, 241 N.Y.L.J. 3 (June 11, 2009),available at http://www.law.com/jsp/cc/PubArticleCC.jsp?id=1202431372080.

(59.) See Ritchey, 244 F.3d at 638 (finding inquiry-notice standardin section 13 of the 1933 Act); Great Rivers Coop. v. Farmland Indus.,Inc., 120 F.3d 893, 896 (8th Cir. 1997) (same); Tregenza, 12 F.3d at 722(finding inquiry-notice standard through "judicialcreativity"); Menowitz v. Brown, 911 F.2d 36, 41 (2d Cir. 1993)(per curiam) (finding inquiry-notice standard within the meaning of theword "discovery" in section 9(e) of the 1934 Act); Howard v.Haddad, 962 F.2d 328, 330 (4th Cir. 1992) (accepting inquiry-noticestandard without explanation); Anixter v. Home-Stake Prod. Co., 939 F.2d1420, 1441 (10th Cir. 1991) (finding inquiry-notice standard impliedlyadopted in Lampf even though not in section 9(e)).

(60.) E.g., GO Computer, Inc. v. Microsoft Corp., 508 F.3d 170, 177(4th Cir. 2007); Franze v. Equitable Assurance, 296 F.3d 1250, 1254-55(11th Cir. 2002); Theoharous, 256 F.3d at 1228; Brumbaugh, 985 F.2d at162-63. The Fifth and Eighth Circuits likewise start the statute oflimitations clock at the first sign of "storm warnings," if areasonably diligent inquiry could have uncovered the facts supporting afraud claim within the limitations period. E.g., Great Rivers Coop., 120F.3d at 896, 898-99 (starting the limitations clock on the "stormwarnings" date); Bodenhamer v. Shearson Lehman Hutton, Inc., No.92-2392, 1993 WL 277033, at *2 (5th Cir. July 14, 1993) (nonprecedentialdecision); Jensen v. Snellings, 841 F.2d 600, 606-07 (5th Cir. 1988).

(61.) E.g., New Eng. Health Care Employees Pension Fund, 336 F.3dat 501; Young v. Lepone, 305 F.3d 1, 8-10 (1st Cir. 2002); Sterlin, 154F.3d at 1200-01; Fujisawa Pharm. Co. v. Kapoor, 115 F.3d 1332, 1335 (7thCir. 1997).

(62.) Compare Young, 305 F.3d at 9 (stating that the plaintiffbears the burden of "showing that she fulfilled her correspondingduty of making a reasonably diligent inquiry into the possibility offraudulent activity"), with Wyser-Pratte Mgmt. Co. v. Telxon Corp.,413 F.3d 553, 563 n.9 (6th Cir. 2005) (employing a strictly objectiveapproach when examining what information would be available to aninvestor who conducted a reasonably diligent investigation); andSterlin, 154 F.3d at 1202 n.20 (using strictly objective approach), withFujisawa Pharm. Co., 115 F.3d at 1335 (using both objective andsubjective components in assessing what information an investor in theplaintiffs position could have uncovered had it investigated possiblefraud).

(63.) In re Merck & Co. Sec., Derivative & ERISA Litig.,543 F.3d 150, 161 (3d Cir. 2008).

(64.) Shah v. Meeker, 435 F.3d 244, 251 (2d Cir. 2006).

(65.) LC Capital Partners, LP v. Frontier Ins. Group, Inc., 318F.3d 148, 154 (2d Cir. 2003).

(66.) SEC Rule 10b-5, 17 C.F.R. [section] 240.10b-5 (2010); seeDura Pharm., Inc. v. Broudo, 544 U.S. 336, 341-42 (2005). Section 11claims, in contrast, do not require proof of reliance, causation, orscienter, but only materiality and damages. E.g., Alpern v. UtiliCorpUnited, Inc., 84 F.3d 1525, 1541 (8th Cir. 1996). Loss causation is notan element of a section 11 claim, but an affirmative defense to it. See15 U.S.C. [section] 77l(b) (2006); Ind. State Dist. Council of Laborersv. Omnicare, Inc., 583 F.3d 935, 947 (6th Cir. 2009), cert. dismissed,178 L. Ed. 2d 411 (2010).

(67.) For a full discussion of "storm warnings," see J.Robert Brown, Jr., The Supreme Court and the Mission To RestrictInvestor Protection: Merck v. Reynolds (Part 6: The Misguided Concept ofInquiry Notice) (June 22, 2009),http://www.theracetothebottom.org/securities-issues/the-supreme-court-and-the-mission-to-restrict-investor-prote-7.html.

(68.) New Eng. Health Care Employees Pension Fund v. Ernst &Young, L.L.P., 336 F.3d 495, 501 (6th Cir. 2003); Young v. Lepone, 305F.3d 1, 9-10 (1st Cir. 2002).

(69.) For example, the Seventh Circuit had suggested that theplaintiff had to have known (or should have known) facts that wouldestablish scienter. Law v. Medco Research, Inc., 113 F.3d 781, 786 (7thCir. 1997) ("In a fraud case, [the plaintiff] needs to know ...that the defendant has made a representation that was knowingly false.When the plaintiff knows or should know this, the statute of limitationsbegins to run."); see also Sudo Props., Inc. v. Terrebonne ParishConsol. Gov't, 503 F.3d 371, 375, 377-78 (5th Cir. 2007) (statinginquiry notice was not triggered by plaintiffs knowledge thatdefendant's predictions were "grossly incorrect," untilplaintiff "learned for the first time that [defendant] hadintentionally misled him").

(70.) See generally ENRON AND OTHER CORPORATE FIASCOS: THECORPORATE SCANDAL READER (Nancy B. Rapoport et al., eds., 2d ed. 2009).

(71.) SOX had several effects on corporate governance. The law (1)required principal executive officers to certify that certain reportscontained no false or misleading information, Sarbanes-Oxley Act of 2002[section] 302, 15 U.S.C. [section] 7241(a); (2) provided criminalpenalties if the CEO knowingly certified false information, id.[section] 906, 15 U.S.C. [section] 1350(c); and (3) mandated that eachannual report filed by a company contain a report on internal controlsestablished to guard against fraud, id. [section] 404, 15 U.S.C.[section] 7262(a)-(b).

SOX has been criticized as "quack corporate governance,"see generally Roberta Romano, The Sarbanes-Oxley Act and the Making ofQuack Corporate Governance, 114 YALE L.J. 1521 (2005), and asnonresponsive because, ironically, had SOX been in effect, Enron wouldhave met all of its requirements, JONATHAN R. MACEY, CORPORATEGOVERNANCE: PROMISES KEPT, PROMISES BROKEN 79-85 (2008). But others havebeen quick to defend the law. See generally J. Robert Brown, Jr.,Criticizing the Critics: Sarbanes-Oxley and Quack Corporate Governance,90 MARQ. L. REV. 309 (2006); Charles W. Murdock, Sarbanes-Oxley FiveYears Later: Hero or Villain, 39 LOY. U. CHI. L.J. 525, 526 (2008)(concluding "the policy behind Sarbanes-Oxley is essential for theproper functioning of efficient capital markets").

(72.) 28 U.S.C. [section] 1658(b); see also HAZEN, supra note 45.

(73.) 28 U.S.C. [section] 1658(b) ("[A] private right ofaction that involves a claim of fraud, deceit, manipulation, orcontrivance in contravention of a regulatory requirement concerning thesecurities laws, as defined in section 3(a)(47) of the SecuritiesExchange Act of 1934 (15 U.S.C. 78c(a)(47)), may be brought not laterthan the earlier of ... (1) 2 years after the discovery of the factsconstituting the violation; or (2) 5 years after such violation.").

(74.) Compare id., with 15 U.S.C. [section] 78i(e).

(75.) S. REP. NO. 107-146, at 8 (2002).

(76.) Id. ("As Washington State Attorney General Gregoiretestified at the Committee hearing, in the Enron state pension fundlitigation, the current short statute of limitations has forced somestates to forgo claims against Enron based on alleged securities fraudin 1997 and 1998. In Washington state alone, the short statute oflimitations may cost hardworking state employees, firefighters andpolice officers nearly $50 million in lost Enron investments, which theywill never recover.").

(77.) Id. at 9 ("[T]he best cons are designed so that evenafter victims are cheated, they will not know who cheated them, orhow."); see also Lampf, Pleva, Lipkind, Prupis & Petigrow v.Gilbertson, 501 U.S. 350, 377 (1991) (Kennedy, J., dissenting)("Ponzi schemes, for example, can maintain the illusion of aprofit-making enterprise for years, and sophisticated investors may notbe able to discover the fraud until long after its perpetration.").

(78.) 15 U.S.C. [section] 78u-4(a)(2)-(3), (7).

(79.) Id. [section] 78u-4(b)(3).

(80.) S. REP. NO. 107-146, at 9.

(81.) 15 U.S.C. [section] 78u-4(b)(1)-(2).

(82.) S. REP. No. 107-146, at 9.

(83.) Id. at 9-10. The Senate Judiciary Committee also observedthat a short statute of limitations invites defendants to takesophisticated steps to conceal their deceit--a point proved right byEnron. Id. ("[I]t only takes a few seconds to warm up theshredder.").

(84.) 28 U.S.C. [section] 1658(b).

(85.) Betz v. Trainer Wortham & Co., 519 F.3d 863, 873 (9thCir. 2008), vacated, 130 S. Ct. 2400 (2010); In re Merck & Co. Sec.,Derivative & ERISA Litig., 543 F.3d 150, 172 (3d Cir. 2008). Threejudges on the Ninth Circuit dissented from the circuit's refusal torehear the case en banc, arguing that the approach adopted in Betz wasin conflict with all ten other circuits. Betz, 519 F.3d at 865(Kozinski, C.J., dissenting from the denial of the petition to rehearthe case en banc).

(86.) Petition for Writ of Certiorari at 35-36, Merck & Co. v.Reynolds, 130 S. Ct. 1784 (2010) (No. 08-905), 2009 WL 133458.

(87.) Merck & Co. v. Reynolds, 129 S. Ct. 2432 (2009). TheSupreme Court, after Merck, granted the writ of certiorari in Betz andimmediately remanded to the Ninth Circuit for further consideration inlight of Merck. Trainer Wortham & Co. v. Betz, 130 S. Ct. 2400(2010).

(88.) See supra Part I.B (discussing the various approaches thefederal courts of appeals took to determine when the statute oflimitations was triggered for securities fraud claims).

(89.) Merck, 130 S. Ct. at 1789-90 (internal quotation marksomitted).

(90.) Id. at 1790 (citing Ernst & Ernst v. Hochfelder, 425 U.S.185, 193 n.12 (1976)).

(91.) In re Merck & Co. Sec., Derivative & ERISA Litig.,543 F.3d 150, 153 (3d Cir. 2008). Merck is the world'ssecond-biggest drug manufacturer by sales, with roughly $40 billion inannual revenue since November 2009. Jesse J. Holland, Court Says VioxxLawsuit Can Proceed, ABC NEWS, Apr. 27, 2010,http://abcnews.go.com/Business/wireStory?id =10486758.

(92.) In re Merck & Co., 543 F.3d at 153-54.

(93.) Id. at 154.

(94.) Id. The study found that about four out of one thousandparticipants who took Vioxx suffered heart attacks compared to only oneout of one thousand who took naproxen. Merck, 130 S. Ct. at 1790. Alater study linked Vioxx to more than 27,000 heart attacks nationwidefrom the time it came on the market in 1999 through 2003. Rita Rubin,How Did Vioxx Debacle Happen?, USA TODAY, Oct. 12, 2004,http://www.usatoday.com/news/health/ 2004-10-12-vioxx-cover_x.htm. Astudy by the New England Journal of Medicine on Vioxx has also beencriticized: the Journal "disclosed its concern about studies it hadpublished dealing with ... Vioxx," because the "studies inquestion reported only selective data on heart attacks and strokes"and did not mention the cardiovascular or overall dangers of Vioxx.Charles W. Murdock, Why Not Tell the Truth?: Deceptive Practices and theEconomic Meltdown, 41 LOY. U. CHI. L.J. 801, 805 (2010).

(95.) In re Merck & Co., 543 F.3d at 154.

(96.) Merck, 130 S. Ct. at 1791. Merck acknowledged that its"naproxen hypothesis" had not been observed in any clinicalstudies. Id.

(97.) In re Merck & Co., 543 F.3d at 155.

(98.) Id. at 156. An additional lawsuit was brought in September2001 alleging consumer fraud on behalf of Vioxx users, and later asecond product liability lawsuit was also brought. Id. at 158.

(99.) Id. at 156.

(100.) Id. at 156-57.

(101.) Id. at 156. The FDA was largely criticized for its handlingof the Vioxx situation. See, e.g., Rubin, supra note 94. After the FDAwarning letter was released, more products-liability lawsuits werefiled. Merck, 130 S. Ct. at 1791.

(102.) In re Merck & Co., 543 F.3d at 158.

(103.) Id. at 159.

(104.) Id.

(105.) Id. Researchers found that those given Vioxx for thirty toninety days were 37 percent more likely to have suffered a heart attackthan those given either a different painkiller or no painkiller at all.Merck, 130 S. Ct. at 1792.

(106.) Merck, 130 S. Ct. at 1792.

(107.) In re Merck & Co., 543 F.3d at 159; see also PressRelease, Merck, Merck Announces Voluntary Worldwide Withdrawal of VIOXX(Sept. 30, 2004), available at http://www.merck.com/newsroom/vioxx/pdf]vioxx-press-release-final.pdf. An estimated two million peoplewere taking Vioxx when it was pulled from the market. Rubin, supra note94. Shareholders lost a combined $28 billion when the price of Merckstock dropped after Vioxx was pulled from the market. Holland, supranote 91.

(108.) In re Merck & Co., 543 F.3d at 159-60.

(109.) In re Merck & Co. Sec., Derivative & ERISA Litig.,483 F. Supp. 2d 407, 423-24 (D.N.J. 2007). 110. Id. at 424.

(111.) In re Merck & Co., 543 F.3d at 172. Judge Roth dissentedand concluded that there were sufficient storm warnings more than twoyears before the filing of the complaint that put the plaintiffs oninquiry notice of fraud. Id. at 173 (Roth, J., dissenting).

(112.) Merck & Co. v. Reynolds, 130 S. Ct. 1784, 1798-99(2010).

(113.) Id. at 1799.

(114.) Id. at 1793, 1796. Justice Stevens concurred, but opinedthat in this case there was no difference between the time when theplaintiffs discovered or should have discovered the facts to supporttheir claim, and as such, the Court should have waited until a case camebefore it in which the difference between the actual discovery rule andthe constructive discovery rule would affect the outcome. Id. at 1799(Stevens, J., concurring in part).

(115.) Id. at 1793-95.

(116.) Id. at 1794-95.

(117.) Id. at 1797.

(118.) Id. For this same reason, the Court rejected Merck'sfall-back argument "that even if the limitations period doesgenerally begin at 'discovery,' it should nonetheless run fromthe point of 'inquiry'" notice if the plaintiff fails toundertake a diligent investigation--it could not be reconciled with thetext of the statute. Id. at 1797-98.

(119.) Id. at 1796.

(120.) Id.

(121.) Id.

(122.) Id.

(123.) Id. at 1796-97.

(124.) Id. at 1797 ("An incorrect prediction about afirm's future earnings, by itself, does not automatically tell uswhether the speaker deliberately lied or just made an innocent (andtherefore nonactionable) error.").

(125.) See, e.g., Alexander v. Sandoval, 532 U.S. 275, 291 (2001)(declining to recognize implied right of action); Franklin v. GwinnettCounty Pub. Sch., 503 U.S. 60, 77-78 (1992) (Scalia, J., concurring)(suggesting that the Court should abandon implied rights of actionentirely); Thompson v. Thompson, 484 U.S. 174, 191-92 (1988) (Scalia,J., concurring) (arguing for a "categorical position that federalprivate rights of action will not be implied").

(126.) See, e.g., Erwin Chemerinsky, The Roberts Court at AgeThree, 54 WAYNE L. REV. 947, 972 (2008) ("Preemption issues createan opportunity for an unusual coalition between more liberal Justices,like Stephen Breyer, who favor more expansive national power, andconservative Justices, like Antonin Scalia and John Roberts, who arestrongly pro-business.'); Minutes from a Convention of TheFederalist Society, The Roberts Court and Federalism, 4 N.Y.U.J.L. &LIBERTY 330, 343 (2009) (quoting Professor Jeffrey Rosen as stating"Justice Scalia has always tended to be more of a pro-businessconservative than a libertarian, states' rights conservative,beginning with his days as the editor of Regulation magazine, which manycalled Deregulation, and tracing back to a particular date in 1984 whenhe debated Richard Epstein at the Cato Institute"); Pamela JonesHarbour, The Supreme Court's Antitrust Future: New Directions orRevisiting Old Cases?, ANTITRUST SOURCE, Dec. 2007,http://www.abanet.org/antitrust/ at-source/07/12/Dec07.Harbour12.17.pdf("The Court is now undeniably 'conservative' in a waythat would be comfortable to the Reagan Administration. Five Republicanappointees--Chief Justice John Roberts, joined by Associate JusticesAnthony Kennedy, Antonin Scalia, Clarence Thomas, and SamuelAlito--anchor a solidly conservative and pro-business majority for thisCourt.").

(127.) Justice Scalia has been on the more plaintiff-friendly sideof the statute of limitations debate for securities fraud before. InLampf, Justice Scalia argued in concurrence that "absent acongressionally created limitations period state periods govern, or, ifthey are inconsistent with the purposes of the federal Act, nolimitations period exists." Lampf, Pleva, Lipkind, Prupis &Petigrow v. Gilbertson, 501 U.S. 350, 364 (1991) (Scalia, J.,concurring) (emphasis added). But he tempered this statement and insteadthought it best to adopt the statute of limitations set forth in the1934 Act. Justice Scalia stated,

 [T]he unintended and possibly irrational results [of holding that there is no statute of limitations] will certainly deter judicial invention of causes of action. That is not an unworthy goal, but to pursue it in that fashion would be highly unjust to those who must litigate past inventions. An alternative approach would be to say that since we "implied" the cause of action we ought to "imply" an appropriate statute of limitations as well. That is just enough, but too lawless to be imagined.... [T]he most responsible approach, where the enactment that has been the occasion for our creation of a cause of action contains a limitations period for an analogous cause of action, is to use that. We are imagining here. And I agree with the Court that we can imagine no clearer indication of how Congress would have balanced the policy considerations implicit in any limitations provision than the balance struck by the same Congress in limiting similar and related protections.

Id. at 365-66 (internal quotations omitted).

(128.) Merck, 130 S. Ct. at 1801-02 (Scalia, J., concurring).Faculty at law and business schools argued that regardless of actual orconstructive discovery, "[t]he substance of the underlying claimpresumes that members of the class are aware of the facts known to themarket." Therefore, "[t]o the extent the market is aware ofthe fraud," the limitations period would begin. Brief of AmiciCuriae Faculty at Law and Business Schools in Support of Respondents at34, Merck, 130 S. Ct. 1784 (No. 08-905), 2009 WL 3477293.

(129.) 15 U.S.C. [section] 77m (2006) (emphasis added). JusticeScalia observed that "[t]o interpret [section] 1658(b)(1) asimposing a constructive-discovery standard, one must therefore assume,contrary to common sense, that the same word means two very differentthings in the same statutory context of limitations periods forsecurities-fraud actions under the 1933 and 1934 Acts." Merck, 130S. Ct. at 1800.

(130.) Merck, 130 S. Ct. at 1800-01.

(131.) Id.

(132.) Id. at 1802. This is a point Justice Scalia has made before.See, e.g., Zedner v. United States, 547 U.S. 489, 509-10 (2006) (Scalia,J., concurring) ("[T]he only language that constitutes 'aLaw' within the meaning of the Bicameralism and Presentment Clauseof Article I, [section] 7, and hence the only language adopted in afashion that entitles it to our attention, is the text of the enactedstatute."); United States v. Thompson/Center Arms Co., 504 U.S.505, 521 (1992) (Scalia, J., concurring) ("[Legislative history is]that last hope of lost interpretive causes, that St. Jude of thehagiology of statutory construction."). For a full discussion ofthe Supreme Court's use of legislative history, see David S. Law& David Zaring, Law Versus Ideology: The Supreme Court and the Useof Legislative History, 51 WM. & MARY L. REV. 1653 (2010).

(133.) Merck, 130 S. Ct. at 1802-03 (Scalia J., concurring); seealso supra Part I.B (discussing the varied approaches the courts ofappeals adopted).

(134.) CORNERSTONE RESEARCH, SECURITIES CLASS ACTION FILINGS: 2009:A YEAR IN REVIEW 6 (2009).

(135.) STEPHANIE PLANCICH & SVETLANA STARYKH, NERA, RECENTTRENDS IN SECURITIES CLASS ACTION LITIGATION: 2009 YEAR-END UPDATE 8(2009), available at http://www.nera.com/extImage/Recent_Trends_Report_01.10.pdf.

(136.) CORNERSTONE RESEARCH, supra note 134, at 6.

(137.) PLANCICH & STARYKH, supra note 135, at 8-9.

(138.) Id. at 9. NERA hypothesized that this increased lag istemporary: plaintiffs were focused on the large credit crisis litigationover the past two years and only now are returning to other noncreditcrisis cases with older class periods. Id. at 9. This hypothesis,though, remains to be tested.

(139.) CORNERSTONE RESEARCH, supra note 134, at 7.

(140.) Id.

(141.) Kevin LaCroix, The Sands of Time: An Interesting NewSubprime Securities Suit, The D&O Diary (May 26, 2010),http://www.dandodiary.com/2010/05/articles/subprimelitigation/the-sands-of-time-an-interesting-new-subprime.securities-suit/; Kevin LaCroix, Who'sGetting Hit With Securities Suits These Days, The D&O Diary (May 17,2010), http://www.dandodiary.com/2010/05/articles/securities-litigation/whos-getting-hit-withsecurities-suits-these-days/;Kevin LaCroix, U.S. Supreme Court Allows Merck Vioxx Securities Suit toProceed, The D&O Diary (Apr. 27, 2010),http://www.dandodiary.com/2010/04/articles/securities-litigation/us-supreme-court-allows-merck-vioxx-securities.suit-toproceed/; see alsoPub. Employees Ret. Sys. of Miss. v. Merrill Lynch & Co., 714 F.Supp. 2d 475, 479-81 (2010).

(142.) LaCroix, U.S. Supreme Court Allows Merck Vioxx SecuritiesSuit to Proceed, supra note 141; see, e.g., Pub. Employees Ret. Sys. ofMiss., 714 F. Supp. 2d at 479-81.

(143.) E.g., LaCroix, The Sands of Time: An Interesting NewSubprime Securities Suit, supra note 141; LaCroix, Who's GettingHit With Securities Suits These Days, supra note 141.

(144.) E.g., Brent Kendall, Suit Against Merck Allowed to Proceed,WALL ST. J., Apr. 28, 2010, http://online.wsj.com/article/SB10001424052748703832204575210000606165846.html ("David C.Frederick, who argued the case for the plaintiffs, said the ruling'is a wonderful decision and we look forward to litigating themerits in the district court.'... Tuesday's ruling againstMerck may knock out the timeliness argument as a line of defense forcompanies fending offinvestor lawsuits."); LaCroix, U.S. SupremeCourt Allows Merck Vioxx Securities Suit to Proceed, supra note 141("[T]he Court's opinion definitely is helpful to theplaintiffs. In recent years, the Court has developed a reputation ashostile to private securities lawsuits. Without a doubt, the Court hasissued a series of decisions (Tellabs, Stoneridge, Twombley/Iqbal, Dura,etc.) that have proved helpful to defendants. But the Court'sopinion in the Merck case is not only helpful to the plaintiffs in thatcase but it likely will prove useful to plaintiffs in other cases aswell."); Tony Mauro, Merck Shareholder Suit Timely, Justices Rule,LEGAL INTELLIGENCER, Apr. 28, 2010, available at 2010 WLNR 8734527(stating that Merck is beneficial for plaintiffs); Kevin C. Newsom &J. Thomas Richie, Amicus Update: Supreme Court Decision Spells IncreasedDifficulty for Defendants in Securities Law Claims, DRI: THE VOICE OFTHE DEFENSE BAR, Apr. 29, 2010, http://www.dri.org/open/Article.aspx?ID=311 ("[D]efendants will have a more difficult timethan in the past showing that securities law claims are time-barred,which will augment risks in litigation and increase discoverycosts.").

(145.) Brief for the Petitioners, supra note 56, at 16-33 (arguingthat the statute of limitations begins when the plaintiff was alerted tothe possibility of fraud).

(146.) 421 U.S. 723 (1975) (limiting private damages action underRule 10b-5 to actual purchasers or sellers of securities).

(147.) Michael J. Kaufman, Mending the Weathered JurisdictionalFences in the Supreme Court's Securities Fraud Decisions, 49 SMUL.REV. 159, 188-89 (1996). The Supreme Court's most recent trilogymay easily be added to the chart showing this trend. See StoneridgeInvs. Partners, L.L.C.v. Scientific-Atlanta, Inc., 552 U.S. 148, 159-64(2008) (rejecting scheme liability); Tellabs, Inc. v. Makor Issues &Rights, Ltd., 551 U.S. 308, 322-23 (2007) (heightening the pleadingstandard by requiring district courts to weigh both culpable andnonculpable inferences of scienter at the motion to dismiss stage); DuraPharm., Inc. v. Broudo, 544 U.S. 336, 342-44 (2005) (stating that asecurities fraud plaintiff cannot plead loss causation simply byalleging in the complaint, and later establishing, that the price of thesecurity on the date of purchase was inflated because of themisrepresentation).

(148.) Some commentators have argued that Merck and the recentcases decided since Dura are consistent in that they all represent theCourt's approach to "judicial conservatism, grounded instatutory language." Jordan Eth et al., Justices Focus on Languagein Cases Like 'Merck,' RECORDER, Apr. 30, 2010, available at2010 WLNR 8952438. But Merck adopted a constructive discoverystandard--the statute contains no language suggesting that the standardshould be constructive as opposed to actual discovery. JusticeScalia's concurrence argued just that point. Merck & Co. v.Reynolds, 130 S. Ct. 1784, 1800-01 (2010) (Scalia, J., concurring).

(149.) See infra Part III.A.1.

(150.) See infra Part III.A.2.

(151.) See infra Part III.A.3.

(152.) See supra Part II.C (describing how filing statistics andanecdotal evidence suggest that the statute of limitations may becomeincreasingly important for future securities claims).

(153.) Merck, 130 S. Ct. at 1789-90 (majority opinion).

(154.) WILLIAM SHAKESPEARE, THE MERCHANT OF VENICE act 2, sc. 7, L.65 (David Bevington & David Scott Kastan eds., Bantam Classic 2005).

(155.) Herman & MacLean v. Huddleston, 459 U.S. 375, 390 n.30(1983).

(156.) See 15 U.S.C. [section] 78u-4(b)(3)(B) (2006) (automaticallystaying discovery pending the resolution of a defendant's motion todismiss).

(157.) See id. at [section] 78u-4(b)(1)-(2) (requiring theplaintiff to plead with particularity facts demonstrating a stronginference of scienter). The federal appellate courts have likewisecurbed plaintiffs' use of confidential informants in securitiesfraud, which was a critical tool plaintiffs used to investigatepotential stock fraud and meet the PSLRA's heightened pleadingrequirements. See Michael J. Kaufman & John M. Wunderlich, Resolvingthe Continuing Controversy Regarding Confidential Informants in PrivateSecurities Fraud Litigation, 19 CORNELL J.L. & PUB. POL'Y 637,646-61 (2010) [hereinafter Kaufman & Wunderlich, Resolving theContinuing Controversy Regarding Confidential Informants]; Michael J.Kaufman & John M. Wunderlich, Congress, the Supreme Court, and theProper Role of Confidential Informants in Securities Fraud Litigation,36 SEC. REG. L.J. 345, 351-57 (2008) [hereinafter Kaufman &Wunderlich, Congress, the Supreme Court, and the Proper Role ofConfidential Informants]; Charles W. Murdock, Corporate Corruption andthe Complicity of Congress and the Supreme Court--The Tortuous Path fromCentral Bank to Stoneridge Investment Partners, 6 BERKELEY BUS. L.J.131, 186 (2009).

(158.) Winer Family Trust v. Queen, 503 F.3d 319, 335 (3d Cir.2007).

(159.) Makor Issues & Rights, Ltd. v. Tellabs, Inc. (TellabsII), 513 F.3d 702, 710 (7th Cir. 2008).

(160.) See, e.g., Mizzaro v. Home Depot, Inc., 544 F.3d 1230, 1254(11th Cir. 2008); Ind. Elec. Workers' Pension Trust Fund IBEW v.Shaw Group, Inc., 537 F.3d 527, 533 (5th Cir. 2008); Pugh v. TribuneCo., 521 F.3d 686, 693 (7th Cir. 2008); Winer Family Trust, 503 F.3d at335; Makor Issues & Rights, Ltd. v. Tellabs, Inc. (Tellabs 1), 437F.3d 588, 602-03 (7th Cir. 2006), vacated, 551 U.S. 308 (2007);Southland Sec. Corp. v. INSpire Ins. Solutions, Inc., 365 F.3d 353, 366(5th Cir. 2004); In re Apple Computer, Inc. Sec. Litig., 243 F. Supp. 2d1012, 1023 (N.D. Cal. 2002).

(161.) See, e.g., Teamsters Local 445 Freight Div. Pension Fund v.Dynex Capital Inc., 531 F.3d 190, 195 (2d Cir. 2008) (indicating awillingness to allow a plaintiff "to raise the required inference[of scienter] with regard to a corporate defendant without doing so withregard to a specific individual defendant"); City of MonroeEmployees Ret. Sys. v. Bridgestone Corp., 399 F.3d 651, 688 (6th Cir.2005) ("[K]nowledge of a corporate officer or agent acting withinthe scope of his authority is attributable to the corporation.");Schwartz v. Celestial Seasonings, Inc., 124 F.3d 1246, 1254 (10th Cir.1997) (stating that plaintiff-investors need not "match"specific misstatements to specific officers or directors).

(162.) See HAZEN, supra note 45, [section] 12.814][D]. According tothe Ninth Circuit, allegations regarding a company's coreoperations may be relevant to scienter in three circ*mstances: (1) wherethe defendant has actual knowledge of the information; (2) where itwould be absurd to conclude that the defendants did not know theinformation; and (3) where the allegations taken together raise a cogentand compelling standard of scienter. S. Ferry LP No. 2 v. Killinger, 542F.3d 776, 785-86 (9th Cir. 2008).

(163.) Jones v. Corus Bankshares, Inc., 701 F. Supp. 2d 1014, 1028(N.D. Ill. 2010) (internal quotation marks omitted); see also In reSears, Roebuck & Co. Sec. Litig., 291 F. Supp. 2d 722, 727 (N.D.Ill. 2003).

(164.) Tellabs II, 513 F.3d at 710.

(165.) See Pittleman v. Impac Mortg. Holdings, Inc., No. SACV07-0970 AG (MLGx), 2009 WL 648983, at *3 (C.D. Cal. Mar. 9, 2009); seealso Zucco Partners, L.L.C.v. Digimarc Corp., 552 F.3d 981, 1000 (9thCir. 2009) (recognizing that the core operations inference would applyif a "fact is of such prominence that it would be'absurd' to suggest that management was withoutknowledge" of it).

(166.) Merck & Co. v. Reynolds, 130 S. Ct. 1784, 1796-97 (2010)('We recognize that certain statements are such that, to show themfalse is normally to show scienter as well. It is unlikely, for example,that someone would falsely say 'l am not married' withoutbeing aware of the fact that his statement is false.").

(167.) Indeed, Justice Kennedy was skeptical of just the inverseand stated at oral argument that "the companies can't have itboth ways. They can't endorse the Twombly case and then say just aninquiry notice of a general--of a general nature suffices. You have tohave specific evidence of scienter. And there's nothing here toindicate that the plaintiffs had that." Transcript of Oral Argumentat 12, Merck, 130 S. Ct. 1784 (No. 08-905), available at http://www.supremecourt.gov/oral_arguments/argument_transcripts/08-905.pdf.

(168.) See, e.g., Young v. Lepone, 305 F.3d 1, 8-9 (1st Cir. 2002)(stating that the statute of limitations is an affirmative defense andthe defendant bears the burden of proof). At the Rule 12(b)(6) stage,defendants may argue that the statute of limitations had run only on thenarrative in the complaint. See Law v. Medco Research, Inc., 113 F.3d781, 783 (7th Cir. 1997). But later on a motion for summary judgment,the defendant may prove its assertion that the statute of limitationshad begun with evidence of its own. Id.

(169.) 15 U.S.C. [section] 78u-4(b) (2006); Tellabs, Inc. v. MakorIssues & Rights, Ltd., 551 U.S. 308, 313 (2007); Ernst & Ernstv. Hochfelder, 425 U.S. 185, 193 (1976).

(170.) See Mia Mazza, The Tactics of Asserting the Statute ofLimitations Defense After Merck v. Reynolds, 6 SEC. LITIG. REP. 1 (2010)("Whereas Tellabs requires courts to take a holistic approach toscienter at the initial pleading stage, Merck will require courts toanalyze scienter in a more surgical manner.... [U]nder Merck, courts maybe asked to take the 'collective' body of facts and startslicing them away one by one ... to determine whether it was the veryfirst fact that, upon emerging into the eye of the reasonably diligentpublic 'indicated' scienter.").

(171.) See supra Part III.A. 1 (describing how defendants mayinvoke the collective scienter theory and the "coreoperations" inference offensively against plaintiffs).

(172.) Van Cleave, supra note 53, at 88 ("This story verylikely starts with the standard assertions that, prior to the fraudulenttransaction, the defendants intentionally and knowingly made the untruestatements or failed to state the required material facts. If thecomplaint is not filed within [two years] of any of these startlingallegations, the plaintiffs detailed account of the fraud enables thedefendant to plead expiration of the [two-year] statute of limitations.The blatancy of the plaintiffs allegations may be used against him asthe very facts which alerted him to the fraud."); cf. Mazza, supranote 170, at 1 (noting that the converse is true for defendants butneglecting that plaintiffs bear the ultimate burden of proof, stating"[a]lthough parties are permitted to make 'alternative'or 'inconsistent' arguments under Rule 8(d)(3), there isnevertheless a real tension between arguing (i) that plaintiffs fallshort of meeting the Reform Act's stringent standard for pleadingscienter, and (ii) that 'facts indicating scienter available to thereasonably diligent public more than two years before the complaint wasfiled" and noting that "combining both arguments in one motionmay serve to undermine one or both of these points").

(173.) See, e.g., ECA, Local 134 IBEW Joint Pension Trust of Chi.v. JP Morgan Chase Co., 553 F.3d 187, 198-99 (2d Cir. 2009); Cornelia I.Crowell GST Trust v. Possis Med., Inc., 519 F.3d 778, 783 (8th Cir.2008); In re Suprema Specialties, Inc. Sec. Litig., 438 F.3d 256, 277(3d Cir. 2006); In re PEC Solutions, Inc. Sec. Litig., 418 F.3d 379, 390(4th Cir. 2005); Novak v. Kasaks, 216 F.3d 300, 307-08 (2d Cir. 2000).The renowned plaintiffs' lawyer William S. Lerach, responsible forseveral major securities fraud victories over corporate giants such asWorldCom and Enron, considers insider selling to be "footprints inthe snow" of the culpable. PATRICK DILLON & CARL M. CANNON,CIRCLE OF GREED: THE SPECTACULAR RISE AND FALL OF THE LAWYER WHO BROUGHTCORPORATE AMERICA TO ITS KNEES 3 (2010).

(174.) Tellabs, 551 U.S. at 323-24 ("The inference that thedefendant acted with scienter need not be irrefutable, i.e., of thesmoking-gun genre, or even the most plausible of competinginferences.") (internal quotation marks omitted); see also ZuccoPartners, L.L.C. v. Digimarc Corp., 552 F.3d 981, 991 (9th Cir. 2009)("[W]e recognize that Tellabs calls into question a methodologythat relies exclusively on a segmented analysis of scienter.").

(175.) Inst. Invs. Group v. Avaya, Inc., 564 F.3d 242, 276 (3d Cir.2009) ("While it is true that motive can be a relevantconsideration, and personal financial gain may weigh heavily in favor ofa scienter inference, we agree with the Seventh Circuit that the absenceof a motive allegation is not fatal. As earlier stated, allegations mustbe considered collectively; the significance that can be ascribed to anallegation of motive, or lack thereof, depends on the entirety of thecomplaint. If the significance of the presence, or absence, of motiveallegations can be ascertained only by reference to the completecomplaint, then a general rule that motive allegations aresufficient--or necessary--is unsound.") (internal citation andquotation marks omitted).

(176.) "Promulgated by the accounting profession'sFinancial Accounting Standards Board, 'generally acceptedaccounting principles' are the conventions, rules, and proceduresthat define accepted accounting practices." United States v. ArthurYoung & Co., 465 U.S. 805, 811 n.7 (1984).

(177.) Schleicher v. Wendt, 529 F. Supp. 2d 959, 971-72 (S.D. Ind.2007) (collecting cases); see also Helwig v. Vencor, Inc., 251 F.3d 540,552 (6th Cir. 2001) (naming nine factors as suggestive of scienter: (1)insider trading at a suspicious time or in an unusual amount; (2)divergence between internal reports and external statements on the samesubject; (3) closeness in time of an allegedly fraudulent statement oromission and the later disclosure of inconsistent information; (4)evidence of bribery; (5) ancillary lawsuits charging fraud and thecompany's quick settlement of that suit; (6) disregard of the mostcurrent factual information; (7) disclosure of accounting information ina way that its negative implications could only be understood by onewith a high degree of sophistication; (8) personal interest of certaindirectors in not informing disinterested directors of an impending saleof stock; and (9) self-interested motivation of defendants in savingtheir salaries or jobs).

(178.) Elam v. Neidorff, 544 F.3d 921,927 (8th Cir. 2008); In reCerner Corp. Sec. Litig., 425 F.3d 1079, 1083 (8th Cir. 2005); DiLeo v.Ernst & Young, 901 F.2d 624, 627-28 (7th Cir. 1990).

(179.) Elam, 544 F.3d at 927; In re Cerner Corp., 425 F.3d at 1083.

(180.) See Jonathan Eisenberg, Beyond the Basics: Seventy-FiveDefenses Securities Litigators Need To Know, 62 BUS. LAW. 1281, 1321(2007). The fraud-by-hindsight doctrine has been criticized as a thinlyveiled attempt by courts to screen securities cases early, rather thanan effort to control the hindsight bias in securities litigation. MituGulati et al., Fraud by Hindsight, 98 NW. U. L. REV. 773, 776-77 (2004).

(181.) Konkol v. Diebold, Inc., 590 F.3d 390, 403 (6th Cir. 2009)(emphasis added); see also Tellabs, Inc. v. Makor Issues & Rights,Ltd., 551 U.S. 308, 320 (2007) (stating that requiring plaintiffs toplead a strong inference of scienter prevents pleading fraud byhindsight).

(182.) See, e.g., Konkol, 590 F.3d at 403; Pugh v. Tribune Co., 521F.3d 686, 694-95 (7th Cir. 2008); Winer Family Trust v. Queen, 503 F.3d319, 331-32 (3d Cir. 2007); see also Higginbotham v. Baxter Int'l,Inc., 495 F.3d 753, 758 (7th Cir. 2007) ("[T]here is a bigdifference between knowing about the reports from [a subsidiary] andknowing that the reports are false. The complaint documents the formerbut not the latter.").

(183.) See Inst. Invs. Group v. Avaya, Inc., 564 F.3d 242, 269 (3dCir. 2009) (concluding that the plaintiffs did not allege fraud byhindsight because, in judging the totality of circ*mstances andallegations, the court concluded there was a strong inference ofscienter).

(184.) In Merck this problem was apparent at oral argument. Theplaintiffs maintained that the statements made by Merck concerning thenaproxen hypothesis did not show scienter because the defendants neverdisclosed that the hypothesis was not tested, and thus they could nothave discovered facts constituting scienter before the statute oflimitations had run. Transcript of Oral Argument, supra note 167, at 36(statement of David C. Frederick, Esq.). Justice Kennedy observed atargument, "[even if the Court adopts] your theory of the case,there is some problem with the allegation that there was fraud ...because Merck did not disclose that the hypothesis was onlyhypothetical, and the FDA August letter made that clear." Id. at42.

(185.) 15 U.S.C. [section] 78u-4(c)(1)-(2) (2006). Congress enactedthis provision as part of its objective in the PSLRA to reduce"frivolous" suits. S. REP. NO. 104-98, at 7, 14 (1995),reprinted in 1995 U.S.C.C.A.N. 679, 686, 693. Recent decisions from thefederal appellate courts suggest federal district courts should applythis provision with a renewed vigor. See, e.g., Ledford v. Peeples, 605F.3d 871, 928 (11th Cir. 2010) (reversing district court's decisionthat failed to impose Rule 11 sanctions on plaintiffs counsel); ATSICommc'ns, Inc. v. Shaar Fund, Ltd., 579 F.3d 143, 155 (2d Cir.2009) (encouraging parties to move for Rule 11 sanctions and suggestingthat failure to do so would result in lesser award of fees); CitibankGlobal Mkts., Inc. v. Rodriguez Santana, 573 F.3d 17, 31-32 (1st Cir.2009) (suggesting that Rule 11 findings are required even if a"claim was made under the securities laws but where all claims weredismissed on state law grounds"); see also Cohen v. USEC, Inc., 70F. App'x 679, 689 (4th Cir. 2003) (remanding the case to thedistrict court to make required Rule 11 findings); Gurary v. Nu-TechBio-Med, Inc., 303 F.3d 212, 222-26 (2d Cir. 2002) (same).

(186.) Transcript of Oral Argument, supra note 167, at 33.

(187.) Merck & Co. v. Reynolds, 130 S. Ct. 1784, 1790 (2010).

(188.) Transcript of Oral Argument, supra note 167, at 33; see alsoDeBruyne v. Equitable Life Assurance Soc'y, 920 F.2d 457, 466 n. 19(7th Cir. 1990) ("Plaintiffs have also suggested that they havecomplied with the statute of limitations because at least a portion oftheir knowledge regarding the alleged misrepresentations did not ariseuntil after they filed the complaint and hired their expert.... It is anintellectually bankrupt argument, however, or a violation of rule 11,for a plaintiff to file a complaint alleging misrepresentation and, inthe same breath, to assert that he or she did not discover themisrepresentation until after the filing of the complaint.").

(189.) Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S.308, 314 (2007) ("An inference of fraudulent intent may beplausible, yet less cogent than other, nonculpable explanations for thedefendant's conduct. To qualify as 'strong' within theintendment of [section] 21D(b)(2), we hold, an inference of scientermust be more than merely plausible or reasonable--it must be cogent andat least as compelling as any opposing inference of nonfraudulentintent.").

(190.) Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson,501 U.S. 350, 357 (1991).

(191.) Merck, 130 S. Ct. at 1789-90.

(192.) Id. at 1796.

(193.) Tellabs, 551 U.S. at 319 n.3; Ernst & Ernst v.Hochfelder, 425 U.S. 185, 193 n.12 (1976).

(194.) See Edward J. Goodman Life Income Trust v. Jabil Circuit,Inc., 594 F.3d 783, 790-91 (11th Cir. 2010) (holding that scienterrequires deliberate recklessness or actual knowledge, and motive andopportunity alone are never sufficient); In re Software Toolworks Inc.,50 F.3d 615, 626 (9th Cir. 1994) (same); see also Matrix Capital Mgmt.Fund, LP v. BearingPoint, Inc., 576 F.3d 172, 181, 199 (4th Cir. 2009)(asserting that motive and opportunity are useful factors, but notthemselves necessary or sufficient); Frank v. Dana Corp., 547 F.3d 564,570 (6th Cir. 2008) (same); Ind. Elec. Workers' Pension Trust FundIBEW v. Shaw Group, Inc., 537 F.3d 527, 533 (5th Cir. 2008) (same); ACAFin. Guar. Corp. v. Advest, Inc., 512 F.3d 46, 58 (1st Cir. 2008)(same); Makor Issues & Rights, Ltd. v. Tellabs, Inc. (Tellabs I),437 F.3d 588, 601 (7th Cir. 2006) (same); Adams v. Kinder-Morgan, Inc.,340 F.3d 1083, 1105 (10th Cir. 2003) (same); Novak v. Kasaks, 216 F.3d300, 311 (2d Cir. 2000) (motive and opportunity alone are sufficient toestablish scienter); In re Advanta Corp. Sec. Litig., 180 F.3d 525, 535(3d Cir. 1999) (same).

(195.) Law v. Medco Research, Inc., 113 F.3d 781, 786 (7th Cir.1997).

(196.) See, e.g., Betz v. Trainer Wortham & Co., 519 F.3d863,868 (9th Cir. 2008) (Kozinski, C.J., dissenting from the denial torehear the case en banc), vacated, 130 S. Ct. 2400 (2010); New Eng.Health Care Employees Pension Fund v. Ernst & Young, L.L.P., 336F.3d 495, 499 (6th Cir. 2003); Tregenza v. Great Am. Commc'ns Co.,12 F.3d 717, 722 (7th Cir. 1993) (referring to this as a "[h]eads Iwin, tails you lose" situation).

(197.) See infra Part III.B.1.

(198.) See infra Part III.B.2.

(199.) See infra Part III.B.3.

(200.) See, e.g., United States v. Marion, 404 U.S. 307, 322 n.14(1971); Order of United Commercial Travelers of Am. v. Wolfe, 331 U.S.586, 608 n.20 (1947); Mo., Kan. & Tex. Ry. Co. v. Harriman Bros.,227 U.S. 657, 672 (1913).

(201.) See, e.g., Lampf, Pleva, Lipkind, Prupis & Petigrow v.Gilbertson, 501 U.S. 350, 378 (1991) (Kennedy, J., dissenting)("Just determinations of fact cannot be made when, because of thepassage of time, the memories of witnesses have faded or evidence islost.") (quoting Wilson v. Garcia, 471 U.S. 261, 271 (1985)); Betz,519 F.3d at 868 (Kozinski, C.J., dissenting from the denial to rehearthe case en banc) C[P]laintiffs delay may prejudice defendant'scase as memories fade, documents are lost, and witnesses becomeunavailable.") (quoting Brumbaugh v. Princeton Partners, 985 F.2d157, 162 (4th Cir. 1993)); Eriline Co. v. Johnson, 440 F.3d 648, 655(4th Cir. 2006) ("A statute of limitations defense, by contrast,primarily serves only defendants by preventing the revival of staleclaims in which the defense is hampered by lost evidence, fadedmemories, and disappearing witnesses, and to avoid unfairsurprise.") (quoting Johnson v. Ry. Express Agency, Inc., 421 U.S.454, 473 (1975)).

(202.) Suzette M. Malveaux, Statutes of Limitations: A PolicyAnalysis in the Context of Reparations Litigation, 74 GEO. WASH. L. REV.68, 77 (2005).

(203.) Ochoa & Wistrich, supra note 40, at 492-93.

(204.) See supra note 20 and accompanying text.

(205.) John C. Coffee, Jr., Reforming the Securities Class Action:An Essay on Deterrence and Its Implementation, 106 COLUM. L. REV. 1534,1536 (2006) ("Deterrence ... is the only rationale that can justifythe significant costs--both public and private--that securities classactions impose on investors and the judiciary.").

(206.) Malveaux, supra note 202, at 78; see Ochoa & Wistrich,supra note 40, at 492; see also Riddlesbarger v. Hartford Ins. Co., 74U.S. (7 Wall.) 386, 390 (1868) ('The policy of these statutes is toencourage promptitude in the prosecution of remedies.").

(207.) Brief of Amici Curiae Faculty at Law and Business Schools inSupport of Respondents, supra note 128, at 31-33.

(208.) H.R. REP. NO. 104-369, at 32 (1995) (Conf. Rep.), reprintedin 1995 U.S.C.C.A.N. 730, 731; S. REP. No. 104-98, at 10 (1995),reprinted in 1995 U.S.C.C.A.N. 679, 689.

(209.) 15 U.S.C. [section] 77z-l(a)(2)(A)(iii) (2006); see alsoAndrew S. Gold, Experimenting with the Lead Plaintiff Selection Processin Securities Class Actions: A Suggestion for PSLRA Reform, 57 DEPAULL.REV. 447, 450-51 (2008); Craig C. Martin & Matthew H. Metcalf, TheFiduciary Duties of Institutional Investors in Securities Litigation, 56BUS. LAW. 1381, 1393 (2001).

(210.) Brief of Amici Curiae Faculty at Law and Business Schools inSupport of Respondents, supra note 128, at 32; see also 15 U.S.C.[section] 78u-4(a)(3)(B). Congress intended to encourage the use ofinstitutional investors as lead plaintiffs to control theplaintiffs' attorney. H.R. REP. NO. 104-369, at 33; S. REP. NO.104-98, at 11; see also Elliot J. Weiss & John S. Beckerman, Let theMoney Do the Monitoring: How Institutional Investors Can Reduce AgencyCosts in Securities Class Actions, 104 YALE L.J. 2053, 2095 (1995)(noting that large institutions did not, until recently, elect to takemonitoring roles in private securities class action cases despite havingsubstantial interest in the outcome).

(211.) Brief of Amici Curiae Faculty at Law and Business Schools inSupport of Respondents, supra note 128, at 33; Ralph V. De Martino &Jennifer H. Unhoch, U.S. Supreme Court Addresses the Statute ofLimitations for Private Federal Securities Fraud Claims 3 (May 24,2010), http://www.cozen.com/admin/files/publications/sec052110.pdf("Most jurisdictions recognize the 'first to file' rulewhen granting class certifications. Plaintiffs' counsel who are thefirst to file class action complaints tend to be granted the position oflead counsel which allows them to manage the litigation and, therefore,garner the lion's share of any attorneys fees awarded in connectionwith a judgment or settlement. The authors believe that the incentive tobe the 'first to file' will mitigate any concerns regardingplaintiffs unduly delaying commencement of a class actionlawsuit.").

(212.) ELLEN M. RYAN & LAURA E. SIMMONS, CORNERSTONE RESEARCH,SECURITIES CLASS ACTION SETTLEMENTS: 2009 REVIEW AND ANALYSIS 10 (2009),available at http://securities.stanford.edu/Settlements/REVIEW_1995-2009/Settlements_Through_12_2009.pdf.

(213.) Id.

(214.) Merck & Co. v. Reynolds, 130 S. Ct. 1784, 1796 (2010).Moreover, for public information, "plaintiffs are presumed to haveread prospectuses, quarterly reports, and other information relating totheir investments." Alaska Elec. Pension Fund v. Pharmacia Corp.,554 F.3d 342, 347 (3d Cir. 2009) (quoting Mathews v. Kidder, Peabody& Co., Inc., 260 F.3d 239, 252 (3d Cir. 2001)), cert. denied, 130 S.Ct. 2401 (2010).

(215.) CORNERSTONE RESEARCH, supra note 134, at 8.

(216.) Id.

(217.) Ochoa & Wistrich, supra note 40, at 480 ("Except inspecial circ*mstances (such as when a plaintiff relies on an allegedagreement with the defendant), there is no reason to assume that theevidence favorable to the defendant will deteriorate more rapidly thanthe evidence favorable to the plaintiff.").

(218.) S. REP. No. 107-146, at 9 (2002).

(219.) 15 U.S.C. [section] 78u-4(b) (2006); see also Ochoa &Wistrich, supra note 40, at 486 ("[B]ecause the plaintiff usuallybears the burden of proof on the majority of issues, ... on balance,deterioration of evidence would hurt the plaintiff more than it wouldhurt the defendant.").

(220.) Brief of Amici Curiae Faculty at Law and Business Schools inSupport of Respondents, supra note 128, at 32; see also 15 U.S.C.[section] 78u-4(b)(2) ("In any private action arising under thischapter in which the plaintiff may recover money damages only on proofthat the defendant acted with a particular state of mind, the complaintshall, with respect to each act or omission alleged to violate thischapter, state with particularity facts giving rise to a stronginference that the defendant acted with the required state ofmind."); J. Robert Brown, Jr., The Supreme Court and the Mission toRestrict Investor Protection: Merck v. Reynolds (Part 7: The MisguidedNotion of Inquiry Notice) (June 23, 2009),http://www.theracetothebottom.org/securities-Issues/the-supreme-court-and-the-mission-torestrict-investor-prote-8.html("The two year period ... was designed to provide adequate time toput together a complex case once the facts had become apparent. Thediscovery of facts supporting fraud didn't necessarily mean thatplaintiffs were finished. They still had to determine who wasresponsible and to put together an adequate case.").

(221.) MICHAEL J. KAUFMAN, EXPERT WITNESSES: SECURITIES CASES[section] 10:1 (2009); Michael J. Kaufman & John M. Wunderlich,Regressing: The Troubling Dispositive Role of Event Studies inSecurities Fraud Litigation, 15 STANFORD J.L. BUS. & FIN. 183, 186(2009); see also Lisa L. Casey, Reforming Securities Class Actions fromthe Bench: Judging Fiduciaries and Fiduciary Judging, 2003 BYU L. REV.1239, 1270 (stating that securities class actions typically are morefactually and legally complex than individual litigant cases andprosecution of these claims requires greater investments of time andgreater outlays of pretrial expenses).

(222.) Cf. Mazza, supra note 170, at 1 (arguing for morecurtailment of the amendment policy in securities litigation). Seegenerally Anthony Michael Sabino, The New Uniform Statute of Limitationsfor Federal Securities Fraud Actions: Its Evolution, Its Impact, and aCall for Reform, 19 PEPP. L. REV. 485, 520-21 (1992); John M.Wunderlich, Amending Pleadings in Securities Fraud Litigation AfterTellabs, 37 SEC. REG. L.J. 361 (2009).

(223.) 3 RONALD E. MALLEN & JEFFREY M. SMITH, LEGAL MALPRACTICE[section] 23.3 (2007); SCHWARTZ, supra note 35, at 617.

(224.) 28 U.S.C. [section] 1658(b).

(225.) SCHWARTZ, supra note 35, at 620. Statutes of repose arepremised on the idea "that a time should arrive when a person is nolonger responsible for a past act." Id.

(226.) Merck & Co. v. Reynolds, 130 S. CA. 1784, 1797 (2010)("Merck fears that [requiring that plaintiffs discover scienter totrigger the statute of limitations] will give life to stale claims orsubject defendants to liability for acts taken long ago. ButCongress' inclusion in the statute of an unqualified bar on actionsinstituted 5 years after such violation ... giving defendants totalrepose after five years, should diminish that fear.") (internalquotation marks and citations omitted).

(227.) See 15 U.S.C. [section] 78u-4(c)(1)-(2) (stating that at theclose of adjudication, "the court shall include in the recordspecific findings regarding compliance by each party ... with eachrequirement of Rule 11(b)," and that if the court makes a finding"that a party ... violated any requirement of Rule 11(b), ... thecourt shall impose sanctions on such party"); FED. R. CIV. P. 11(b)(requiring that attorneys' filings have a proper purpose, bewarranted by law, and be based on evidentiary support after a reasonableinquiry); see also Marks v. CDW Computer Ctrs., Inc., 122 F.3d 363, 369(7th Cir. 1997) ("What facts, sufficiently particular to file aclaim, could [the plaintiff] have found even if he had started lookingat that time? How could he have confirmed or dispelled any suspicionswith the materials available to him? Would [the defendant] have had [theplaintiff] risk Rule 11 sanctions or a violation of Rule 9(b) by filinga complaint listing the 'bad blood' or 'stormwarnings' and no other particularized evidence of fraud?").The Model Rules of Professional Conduct also require that a lawyer notbring any proceeding unless there is a basis in fact for doing so. MODELRULES OF PROF'L CONDUCT R. 3.1 (2010). A lawyer must also be candidwith the court and refrain from offering evidence that the lawyer knowsis false. Id. R. 3.3(a)(1). Moreover, in the event counsel laterdiscovers that this evidence is false, counsel must take certainremedial measures, which may include disclosure to the court ifnecessary. Id.

(228.) See John M. Wunderlich, Note, Tellabs v. Makor Issues &Rights, Ltd.: The Weighing Game, 39 LOY. U. CHI. L.J. 613, 622-23 (2008)(discussing how Congress enacted the PSLRA's heightened pleadingprovision to curb in terrorem settlements and abusive practices byplaintiffs' attorneys).

(229.) HERBERT M. KRITZER, RISKS, REPUTATIONS, AND REWARDS:CONTINGENCY FEE LEGAL PRACTICE IN THE UNITED STATES 220-21, 250-51(2004) (discussing the role of reputation in contingency fee practicesuch as large class actions); Fred C. Zacharias, Effects of Reputationon the Legal Profession, 65 WASH. & LEE L. REV. 173, 180 (2009)(observing that "adversaries will respond differently to settlementoffers and statements made in negotiations, depending on theiropponents' reputations for candor and taking reasonablepositions"); see also Scott R. Peppet, Lawyers' BargainingEthics, Contract, and Collaboration: The End of the Legal Profession andthe Beginning of Professional Pluralism, 90 IOWA L. REV. 475, 485 (2005)(analyzing a potential "reputational solution" to a bargainingproblem that would enable parties to signal their willingness tocooperate by hiring an attorney with a reputation for collaboration);Douglas H. Yarn, Lawyer Ethics in ADR and the Recommendations of Ethics2000 To Revise the Model Rules of Professional Conduct: Considerationsfor Adoption and State Application, 54 ARK. L. REV. 207, 270 n.269(2001) (arguing that a lawyer's reputation for truthfulness andfairness increases that lawyer's effectiveness as a negotiator infuture negotiations).

(230.) Corporations recognize the intrinsic value of reputation asevidenced from the presence of in-house public relations departments.Pub. Relations Consultants Ass'n, http://www.prca.org.uk/Whatispr(last visited Feb. 18, 2011) ("Public relations is all aboutreputation.").

(231.) See, e.g., Posting of Mae Kuykendall to The Conglomerate,http://www.the conglomerate.org/2010/04/corporate-and-securities-anomalies-fictions-and-inconvenienttruths-.html (Apr. 12, 2010); KevinLaCroix, The Future of the Plaintiffs' Securities Bar?, The D&ODiary (Nov. 6, 2008),http://www.dandodiary.com/2008/11/articles/plaintiffsbar/the-future-of-the-plaintiffs-securities-bar. After the PSLRA,smaller plaintiffs' firms left the private class action arena.Denis T. Rice, A Practitioner's View of the Private SecuritiesLitigation Reform Act of 1995, 31 U.S.F.L. REV. 283, 285 (1997).

(232.) KRITZER, supra note 229, at 220 (discussing the role ofreputation in contingency fee practice such as large class actions).

(233.) See Michael D. Green, The Paradox of Statutes of Limitationsin Toxic Substances Litigation, 76 CAL. L. REV. 965, 984-85 (1988)("One consequence of a sophisticated bar that representssubstantial numbers of victims in discovery rule jurisdictions is thatlawyers run--rather than walk--directly to the courthouse with anyclient who manifests the slightest indication of insidious disease.Regardless of whether the client has suffered any disability orpecuniary loss, the attorney knows the safest course of action is filinga suit as promptly as possible.").

(234.) E.g., Betz v. Trainer Wortham & Co., 519 F.3d 863, 868(9th Cir. 2008) (Kozinski, C.J., dissenting from the denial to rehearthe case en banc), vacated, 130 S. Ct. 2400 (2010); New Eng. Health CareEmployees Pension Fund v. Ernst & Young, L.L.P., 336 F.3d 495,499-500 (6th Cir. 2003); Fujisawa Pharm. Co. v. Kapoor, 115 F.3d 1332,1334 (7th Cir. 1997); Nerman v. Alexander Grant & Co., 926 F. (2d717, 721 (8th Cir. 1991) ("Perhaps it was reasonable for theplaintiffs to take a 'wait and see' approach. But thatelection did not toll the statute of limitations. That is precisely thepoint of the statute of limitations: the plaintiffs had five years to'wait and see,' and to decide whether to sue for fraud or livewith the less-than-promised deal.").

(235.) See Malveaux, supra note 202, at 118 ("Statutes oflimitations are also a poor deterrent of plaintiff misconduct where theplaintiff is unaware of her potential claim."). People are oftenprone to the "planning fallacy"--a systemic tendency towardunrealistic optimism about the time it takes to complete projects.RICHARD H. THALER & CASS R. SUNSTEIN, NUDGE: IMPROVING DECISIONSABOUT HEALTH, WEALTH, AND HAPPINESS 7 (2008); Andrew J. Wistrich,Procrastination, Deadlines, and Statutes of Limitations, 50 WM. &MARY L. REV. 607, 621 (2008). This fallacy is more pronounced for longertasks than shorter ones, such as preparing a complicated lawsuit. Thisfallacy suggests that plaintiffs will underestimate the duration of thetask of filing a lawsuit, misschedule their time, and miss the deadline.Wistrich, supra at 625-26.

(236.) One needs only to consult the laundry list of differenttypes of fraud to see the myriad ways defrauders deceive the investingpublic. See generally M. Owen Donley III, A (Very Brief) Encyclopedia ofSecurities Fraud, 16 BUS. L. TODAY 35 (2007).

(237.) Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson,501 U.S. 350, 377 (1991) (Kennedy, J., dissenting).

(238.) Accounting Reform and Investor Protection: Hearings Beforethe S. Comm. on Banking, Housing, and Urban Affairs, 107th Cong. 1(2002) (statement of Sen. Paul Sarbanes, Chairman, S. Comm. on Banking,Housing, and Urban Affairs).

(239.) RICHARD A. POSNER, A FAILURE OF CAPITALISM: THE CRISIS OF'08 AND THE DESCENT INTO DEPRESSION 221-22 (2009) ("Thereceding stock market tide exposed Bernard Madoff, who is said to haveconfessed to having pulled off the biggest Ponzi scheme in history. Thescheme would have lasted longer and the losses to investors would havebeen greater had the stock market crash been postponed. The crashreduced the value of Madoffs hedge fund, but more important (because thefund probably had little in the way of assets), the general economiccollapse caused requests for redemptions of investments in hedge fundsand other investment funds to soar, and Madoff could not honor hisinvestors' requests for redemption and as a result his schemecollapsed.").

(240.) See generally Alexander Dyck et al., Who Blows the Whistleon Corporate Fraud? (Univ. of Chi. Booth Sch. of Bus., Research PaperNo. 08-22, 2008), available at http://ssrn.com/abstract=891482.

(241.) Amicus Curiae Brief of the Council of InstitutionalInvestors in Support of Respondents at 7, Merck & Co. v. Reynolds,130 S. Ct. 1784 (2010) (No. 08-905), 2009 WL 3477292 ("Companiesintroduce numerous types of information into the marketplace on a dailybasis. Each company alone may make more than ten filings per year withthe SEC, not counting restatements. Additionally, companies regularlyfile press releases, maintain websites containing company information,news, and events, and, in the case of pharmaceutical companies, conductstudies regarding their existing products, as well as those still indevelopment, and release reports of the results.").

(242.) 15 U.S.C. [section] 78u-4(b) (2006).

(243.) The Ninth Circuit aptly explained the problem:

 The PSLRA requires a plaintiff to plead a complaint of securities fraud with an unprecedented degree of specificity and detail "giving rise to a strong inference of deliberate recklessness." This is not an easy standard to comply with--it was not intended to be--and plaintiffs must be held to it. But how much detail is enough detail? When is an inference of deliberate recklessness sufficiently strong? There is no bright-line rule. Sometimes it is easy to tell, but often it is not. The acid test is a motion to dismiss. We need to bear in mind that we are not operating in the world of notice pleadings. In this technical and demanding corner of the law, the drafting of a cognizable complaint can be a matter of trial and error.

Eminence Capital, L.L.C. v. Aspeon, Inc., 316 F.3d 1048, 1052 (9thCir. 2003) (per curiam) (internal citations omitted). Also, consider thequestions posed by Professors Abril and Olazabal:

 Does [corporate scienter] reside in the mind of the ... CEO? In the mind of the chief financial officer who prepared the report ...? In the minds of the regional sales managers, some of whom falsified numbers included in the fraudulent report? In the minds of the hundreds of rank and file employees who bought into the aggressive culture of meeting Wall Street's financial performance targets at any and all costs?

Patricia S. Abril & Ann Morales Olazabal, The Locus ofCorporate Scienter, 2006 COLUM. BUS. L. REV. 81, 83; see also Mauro,supra note 144 (quoting David Frederick of Kellogg, Huber, Hansen, Todd,Evans & Figel, who argued and won the case for Merck shareholders,as stating that Merck is especially significant because scienter is"usually the hardest part of the securities fraud to find outabout").

(244.) Eric Colvin, Corporate Personality and Criminal Liability, 6CRIM. L.F. 1, 1-2 (1995).

(245.) Abril & Olazabal, supra note 243, at 104-05.

(246.) See, e.g., United States v. Gonzalez, 608 F.3d 1001, 1007(7th Cir. 2010).

(247.) Compare Novak v. Kasaks, 216 F.3d 300, 307, 311 (2d Cir.2000) (stating that securities fraud plaintiffs may allege a"strong inference" of scienter by alleging either: (1) factsto show the defendant had both motive and opportunity to commit fraud,or (2) facts that constitute strong circ*mstantial evidence of consciousmisbehavior or recklessness), with In re Silicon Graphics, Inc. Sec.Litig., 183 F.3d 970, 979 (9th Cir. 1999) (stating that securities fraudplaintiffs may allege a "strong inference" of scienter byalleging actual knowledge or recklessness), and Tellabs I, 437 F.3d 588,601 (7th Cir. 2006) (stating that courts engage in a holistic evaluationto determine whether securities fraud plaintiffs alleged a "stronginference" of scienter).

(248.) Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S.308, 323-24 (2007) ("The strength of an inference cannot be decidedin a vacuum. The inquiry is inherently comparative: How likely is itthat one conclusion as compared to others, follows from the underlyingfacts? To determine whether the plaintiff has alleged facts that giverise to the requisite 'strong inference' of scienter, a courtmust consider plausible, nonculpable explanations for thedefendant's conduct, as well as inferences favoring theplaintiff.").

(249.) See Allan Horwich & Sean Siekkinen, Pleading Reform orUnconstitutional Encroachment? An Analysis of the Seventh AmendmentImplications of the Private Securities Litigation Reform Act, 35 SEC.REG. L.J. 4, 7 (2007); Suja A. Thomas, Why the Motion to Dismiss is NowUnconstitutional, 92 MINN. L. REV. 1851, 1890 (2008).

(250.) 15 U.S.C. [section] 78u-4(b) (2006).

(251.) Id. [section] 78u-4(b)(3)(b).

(252.) Murdock, supra note 94, at 831-32; see also Richard Casey& Jared Fields, Piggybacking Through the Pleading Standards:Reliance on Third-Party Investigative Materials To Satisfy ParticularityRequirements in Securities Class Actions, 7 SEC. LITIG. REP. 11 (2010)(discussing how securities fraud plaintiffs use information disclosed infederal enforcement actions, bankruptcy examiner reports, confidentialsources, or other public sources to plead sufficient facts).

(253.) See MACEY, supra note 71, at 64 ("[I]t is virtuallyimpossible to identify, much less to monitor and control, the myriadways that board independence can be compromised."); John C. Coffee,Jr., Understanding Enron: "It's About the Gatekeepers,Stupid," 57 BUS. LAW. 1403, 1418 (2002) ("[T]he audit firmalways knew that the individual audit partner serving the large clientcould become conflicted because the audit partner's job depended onsatisfying its single client; but, the audit firm also knew that itcould monitor its individual audit partners to manage this conflict. Fora long time, monitoring seemingly worked--at least passably well. Morerecently, incentive-based compensation has exacerbated the monitoringproblem, and similarly the evolution of the auditing firm into afinancial conglomerate has seriously compromised old systems of internalcontrol."); George W. Dent, Jr., The Essential Unity ofShareholders and the Myth of Investor Short-Termism, 35 DEL. J. CORP. L.97, 143-44 (2010) ("CEOs always influence, and often dominate, theselection of outside directors .... CEOs also control the informationreceived by outside directors. The CEO can curry their favor in variousways and can threaten to remove uncooperative members. The CEO (who isalmost always a director) and her allies on the board can seize theboard's initiative, and 'groupthink' discourages anyoneinclined to oppose them. Further efforts to ensure board independenceare probably doomed to failure because of the boards' 'uniquesusceptibility to capture by the managers they are supposed tomonitor."'); Jonathan Macey & Hillary A. Sale,Observations on the Role of Commodification, Independence, andGovernance in the Accounting Industry, 48 VILL. L. REV. 1167, 1169(2003) ("[T]he balance of power between accounting firms and theirclients has shifted dangerously away from the equilibrium imbedded inthe market model and back in the direction of the companies theaccounting firms are supposed to monitor. This change threatens toundermine the investing public's basic faith in the quality offinancial reporting. If investors think that there is a risk the booksdo not reflect the nature of the companies' businesses and therisks associated with the investment, they will not invest incompanies.").

(254.) Parties not employed by the issuing firm are commonlyreferred to in securities fraud cases as "secondary actors,"which included the company's lawyers, accountants, and auditors,among others. Pac. Inv. Mgmt. Co. v. Mayer Brown L.L.P., 603 F.3d 144,148 n.1 (2d Cir. 2010).

(255.) See John M. Wunderlich, Bankruptcy's Protection forNon-Debtors From Securities Fraud Suits, 15 FORDHAM J. CORP. & FIN.L. (forthcoming 2011); see also In re Refco, Inc. Sec. Litig., No. 05Civ. 8626(GEL), 2006 WL 2337212, at *1-2 (S.D.N.Y. Aug. 8, 2006)(denying securities fraud plaintiffs' motion to lift stay ofdiscovery to obtain SEC investigation materials and bankruptcyexaminer's report to amend complaint because plaintiffs had notshown undue prejudice); In re Recoton, Corp., 307 B.R. 751, 756 (Bankr.S.D.N.Y. 2004) (allowing securities fraud plaintiffs access tobankruptcy materials because discovery would be subject to a protectiveorder "prohibiting its use for any purpose whatsoever other than inconnection with this bankruptcy proceeding and prohibiting itsdisclosure ... to the plaintiffs in the [securities classaction]"); In re Baldwin United Corp., 46 B.R. 314, 316-17 (Bankr.S.D. Ohio 1985) (stating that the bankruptcy examiner's reportshould not "fuel the ... fires" of further securitieslitigation).

(256.) LYNN M. LOPUCKI, COURTING FAILURE: HOW COMPETITION FOR BIGCASES IS CORRUPTING THE BANKRUPTCY COURTS 151 (2005) ("Enron andthe other parties who wished to sue on Enron's behalf had only twoyears in which to file their cases or be barred by the statute oflimitations. Because the case was handled so awkwardly, nearly sixmonths passed before the examiner was even appointed. The effect was torush the investigation. The examiner worked quickly but was stillcompleting his report when the deadline expired. That left parties whodiscovered their causes of action through the examiner's worklittle or no time in which to digest the 4,500-page report, retaincounsel, and prepare their lawsuits for filing.").

(257.) See, e.g., Zucco Partners, L.L.C.v. Digimarc Corp., 552 F.3d981, 1000 (9th Cir. 2009); see also In re Thornburg Mortg., Inc. Sec.Litig., 695 F. Supp. 2d 1165, 1202-03 (D.N.M. 2010); Stocke v. ShuffleMaster, Inc., 615 F. Supp. 2d 1180, 1191 (D. Nev. 2009).

(258.) Casey & Fields, supra note 252, at 11 ("Fewindividuals who know the facts relating to alleged securities fraud areinclined to cooperate with plaintiffs' attorneys. Moreover,prospective [confidential witnesses] may be limited by confidentialityagreements or, in the case of accountants, professionalobligations.").

(259.) See Jordan Eth & Timothy Blakely, The Use and Abuse ofConfidential Witnesses: The Battle Continues After Tellabs, inSECURITIES LITIGATION & ENFORCEMENT INSTITUTE 2009, at 607 (PLICorp. Law and Practice Course Handbook Series No. B-1762, 2009); LyleRoberts, Pleading in the Dark: The Use (and Potential Abuse) ofConfidential Witness Statements in Federal Securities Fraud Complaints,in SECURITIES LITIGATION & ENFORCEMENT INSTITUTE 2009, supra at 153;see also Kaufman & Wunderlich, Resolving the Continuing ControversyRegarding Confidential Informants, supra note 157; Kaufman &Wunderlich, Congress, the Supreme Court, and the Proper Role ofConfidential Informants, supra note 157.

(260.) Alaska Elec. Pension Fund v. Flowserve Corp., 572 F.3d 221,235 (5th Cir. 2009) (per curiam).

(261.) Ochoa & Wistrich, supra note 40, at 495.

(262.) See H.R. REP. NO. 104-369, at 31 (1995), reprinted in 1995U.S.C.C.A.N. 730, 730 (stating that Congress intended to end "theroutine filing of lawsuits against issuers of securities and otherswhenever there is a significant change in an issuer's stock price,without regard to any underlying culpability of the issuer, and withonly faint hope that the discovery process might lead eventually to someplausible cause of action").

(263.) Ochoa & Wistrich, supra note 40, at 495.

(264.) Id.

(265.) Merck & Co. v. Reynolds, 130 S. Ct. 1784, 1796 (2010).

(266.) See Green, supra note 233, at 983.

(267.) Merck, 130 S. Ct. at 1796.

(268.) See Herman & MacLean v. Huddleston, 459 U.S. 375, 390n.30 (1983); see also Merck, 130 S. Ct. at 1797 ("Where [section]10(b) is at issue, however, the relation of factual falsity and state ofmind is more context specific.").

(269.) See Ochoa & Wistrich, supra note 40, at 496 ("[T]heonly cost to the plaintiff is the time, energy and money expended inpursuing a possibly untimely claim. These costs can be substantial, butif the plaintiff is represented on a contingent fee basis, the financialburden may be minimal.").

(270.) Rule 11 sanctions here are distinguishable from Rule 11sanctions discussed in Part III.A.2, where sanctions would beappropriate if the plaintiff filed a claim without sufficient evidenceof scienter--a necessary element of Rule 10b-5--and thus conceded thathe did not file in good faith. See supra notes 185-94 and accompanyingtext. But here, Rule 11 sanctions are not appropriate because theplaintiff would have acted in good faith, but erroneously predicted howthe court would weigh culpable inferences.

(271.) E.g., Mav. Merrill Lynch, Pierce, Fenner & Smith, Inc.,597 F.3d 84, 88 n.4 (2d Cir. 2010); Tello v. Dean Witter Reynolds, Inc.,494 F.3d 956, 974 (11th Cir. 2007); Johnson v. Aljian, 490 F.3d 778, 781n.13 (9th Cir. 2007).

(272.) See, e.g., United States v. Hickey, 580 F.3d 922, 928 n.1(9th Cir. 2009), cert. denied, 130 S. Ct. 2115 (2010).

(273.) Currie v. Schon, 704 F. Supp. 698, 702 (E.D. La. 1989).

(274.) See In re Merck & Co. Sec., Derivative & ERISALitig., 543 F.3d 150, 172 n.16 (3d Cir. 2008) (commenting on theabsurdity of the dissent's conclusion that there were actionablemisrepresentations that barred litigation).

(275.) Ochoa & Wistrich, supra note 40, at 496.

(276.) E.g., Alaska Elec. Pension Fund v. Flowserve Corp., 572 F.3d221, 235 (5th Cir. 2009) (per curiam); Tello, 410 F.3d at 977 & n.2;Lentell v. Merrill Lynch & Co., 396 F.3d 161, 169 (2d Cir. 2005); LaGrasta v. First Union Sec. Inc., 358 F.3d 840, 848 (11th Cir. 2004);Young v. Lepone, 305 F.3d 1, 9 (1st Cir. 2002); Marks v. CDW ComputerCtrs., Inc., 122 F.3d 363, 368-69 (7th Cir. 1997).

(277.) Fujisawa Pharm. Co. v. Kapoor, 115 F.3d 1332, 1335 (7th Cir.1997).

(278.) Ochoa & Wistrich, supra note 40, at 496.

(279.) See Green, supra note 233, at 983-84.

(280.) District courts have to conduct a mini-trial at the motionto dismiss stage, weighing inferences for and against the plaintiff, andmust resolve whether, on balance, the plaintiffs' allegations gaverise to scienter. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551U.S. 308, 322-23 (2007); see also In re ProQuest Sec. Litig., 527 F.Supp. 2d 728, 746 (E.D. Mich. 2007) ("The analysis required [byTellabs], particularly with respect to pleading scienter, is akin toholding a mini-trial on the merits of the case based only on thecomplaint. This poses a great difficulty in resolving a motion todismiss and letting the case go forward.").

(281.) Michael J. Kaufman & John M. Wunderlich, The UnjustifiedJudicial Creation of Class Certification Merits Trials in SecuritiesFraud Actions, 43 U. MICH. J.L. REFORM 323, 380-81 (2010) [hereinafterKaufman & Wunderlich, Class Certification Merits Trials];Wunderlich, supra note 228, at 663.

(282.) Kaufman & Wunderlich, Class Certification Merits Trials,supra note 281, at 380-81; Wunderlich, supra note 228, at 663.

(283.) Kaufman & Wunderlich, Class Certification Merits Trials,supra note 281, at 380-81; Wunderlich, supra note 228, at 663; see alsoRichard A. Posner, An Economic Approach to Legal Procedure and JudicialAdministration, 2 J. LEGAL STUD. 399, 417-20 (1973) (describing thefactors that come into settlement).

(284.) See supra Part III.A (discussing various scholars'approaches to reforming statutes of limitations).

(285.) See supra Part III.A.

(286.) See supra Part III.B.1.

(287.) See supra Part III.B.2.

(288.) See supra Part III.B.3.

(289.) See Green, supra note 233 (proposing abolishing the statuteof limitations in toxic tort litigation); Malveaux, supra note 202(proposing abolishing the statute of limitations in reparationslitigation); Eli J. Richardson, Eliminating the Limitations ofLimitations Law, 29 ARIZ. ST. L.J. 1015 (1997) (arguing that allstatutes of limitations should be abolished).

(290.) Wistrich, supra note 235, at 643.

(291.) Ehud Guttel & Michael T. Novick, A New Approach to OldCases: Reconsidering Statutes of Limitation, 54 U. TORONTO L.J. 129,132-33 (2004); see also Justin Hughes, Fair Use Across Time, 50 UCLA L.REV. 775 (2003) (arguing that courts should adjust the scope ofcopyright protection to account for the passage of time by expresslyconsidering time as a factor in fair use analysis); Joseph P. Liu,Copyright and Time: A Proposal, 101 MICH. L. REV. 409 (2002) (advancinga similar proposal).

(292.) E.g., 15 U.S.C. [section][section] 77m, 78i(e), 78r(c),78cc(b) (2006); 28 U.S.C. [section] 1658(b).

(293.) See Wistrich, supra note 235, at 619-20.

(294.) THALER & SUNSTEIN, supra note 235, at 33; Nava Ashraf etal., Adam Smith, Behavioral Economist, in EXOTIC PREFERENCES: BEHAVIORALECONOMICS AND HUMAN MOTIVATION 87, 90-91 (2007); Amos Tversky &Daniel Kahneman, Loss Aversion in Riskless Choice: A Reference-DependentModel, in CHOICES, VALUES, AND FRAMES 143, 150 (Daniel Kahneman &Amos Tversky eds., 2008).

(295.) Edward J. McCaffery, Daniel Kahneman & Matthew L.Spitzer, Framing the Jury: Cognitive Perspective on Pain and SufferingAwards, in BEHAVIORAL LAW AND ECONOMICS 259, 261 (Cass Sunstein ed.,2000).

(296.) Wistrich, supra note 235, at 620.

(297.) E.g., Brief for Chamber of Commerce of United States ofAmerica as Amicus Curiae Supporting Petitioners at 29-37, Merck &Co. v. Reynolds, 130 S. Ct. 1784 (2010) (No. 08-905), 2009 WL 2564718;see also Alicia Davis Evans, The Investor Compensation Fund, 33 J. CORP.L. 223, 240 (2007).

(298.) See 18 U.S.C. [section] 1964(c) (2006); see also S. REP. NO.104-98, at 19 (1995), reprinted in 1995 U.S.C.C.A.N. 679, 698-99.

(299.) Ochoa & Wistrich, supra note 40, at 464-66.

(300.) Id. at 467-68; see also Holmes, supra note 1, at 477("[T]he foundation of the acquisition of rights by lapse of time isto be looked for in the position of the person who gains them, not inthat of the loser."); Malveaux, supra note 202, at 76 (recognizingthat companies benefit greatly from the knowledge that they are immunefrom suit and can engage in commercial transactions unencumbered by therisk of litigation).

(301.) Coffee, supra note 205, at 1536; James D. Cox, MakingSecurities Fraud Class Actions Virtuous, 39 ARIZ. L. REV. 497, 509-11(1997). Judge Jed Rakoff recently rejected Bank of America'ssettlement with the SEC, observing that "[i]t is not fair, firstand foremost, because it does not comport with the most elementarynotions of justice and morality, in that it proposes that theshareholders who were the victims of the Bank's alleged misconductnow pay the penalty for that misconduct." SEC v. Bank of Am. Corp.,653 F. Supp. 2d 507, 509 (S.D.N.Y. 2009).

(302.) Cox, supra note 301, at 509. Professor James Cox hasexplained,

 The question of entity liability is not.., limited to securities law violations and there seems little reason to so isolate the debate of the propriety of entity liability to securities violations. Managerial misbehavior ... is a portion of the risk that accompanies ownership. It is a risk internalized through the concept of entity liability. The financial burdens of a securities fraud settlement borne by the innocent stockholders of the corporate violator is indistinguishable from the burden borne by the shareholders of the corporation that produces a defective product or violates the environmental laws. Being a burden of ownership, it is inherent in the feature of enterprise liability that the enterprise internalize the costs of its activities.

Id. at 511.

(303.) E.g., Johnson v. Ry. Express Agency, Inc., 421 U.S. 454,463-64 (1975) ("Although any statute of limitations is necessarilyarbitrary, the length of the period allowed for instituting suitinevitably reflects a value judgment concerning the point at which theinterests in favor of protecting valid claims are outweighed by theinterests in prohibiting the prosecution of stale ones."); TiogaR.R.v. Blossburg & Corning R.R., 87 U.S. 137, 150 (1873) (Hunt, J.,concurring) ("Statutes of limitation are in their nature arbitrary.They rest upon no other foundation than the judgment of a State as towhat will promote the interests of its citizens. Each determines suchlimits and imposes such restraints as it thinks proper."); Lantz v.Comm'r, 607 F.3d 479, 482 (7th Cir. 2010) ("They borrow anexisting statute of limitations rather than create one because 'thelength of a limitations period is arbitrary--you can't reason yourway to it--and courts are supposed not to be arbitrary; when they are,they get criticized for it.'") (quoting Hemmings v. Barian,822 F.2d 688, 689 (7th Cir. 1987)).

(304.) See 28 U.S.C. [section] 1658(b) (2006).

(305.) See supra Part III.B.2; see also Yair Listokin, EfficientTime Bars: A New Rationale for the Existence of Statutes of Limitationsin Criminal Law, 31 J. LEGAL STUD. 99, 115 (2002) ("The'continuing conspiracy' doctrine ... offers an example of acase where the statute of limitations should be extended('tolled'). When overt (but otherwise legal) acts associatedwith an earlier conspiracy are committed, they cause harm in addition tothe harm caused by the original conspiracy. As a result, they should bedeterred. Extending the statute of limitations for the originalconspiracy is one way of deterring these later harmful actions, even ifthe extended statute of limitations adds little to deterrence of theoriginal crime."); Thomas J. Miceli, Deterrence, Litigation Costs,and the Statute of Limitations for Tort Suits, 20 INT'L REV. L.& ECON. 383, 393 (2000) ("[T]he optimal statute length appearsto be longer under a negligence rule as compared to a strict liabilityrule. The reason is that, when the statute is lengthened, it increasesincentives for care (deterrence), thereby making it harder forplaintiffs to prove negligence at trial. Thus, fewer cases are filed atany point in time, which lowers expected litigation costs. Since thisbenefit partially offsets the extra litigation costs incurred bylengthening the statute, the optimal statute is longer.").

(306.) Ochoa & Wistrich, supra note 40, at 501-03. ProfessorOwen Fiss, making an argument against settlement, observes that

 adjudication uses public resources, and employs ... public officials chosen by a process in which the public participates. These officials, like members of the legislative and executive branches, possess a power that has been defined and conferred by public law, not by private agreement. Their job is not to maximize the ends of private parties, nor simply to secure the peace, but to explicate and give force to the values embodied in authoritative texts such as the Constitution and statutes: to interpret those values and to bring reality into accord with them. This duty is not discharged when the parties settle.

Owen M. Fiss, Comment, Against Settlement, 93 YALE L.J. 1073, 1085(1984). This sentiment is equally applicable to resolving cases based onprocedural grounds, like the statute of limitations.

(307.) In congressional testimony, former SEC Chairman ArthurLevitt stated, "Private actions are crucial to the integrity of ourdisclosure system because they provide a direct incentive for issuersand other market participants to meet their obligations under thesecurities laws." S. REP. NO. 104-98, at 38 (1995), reprinted in1995 U.S.C.C.A.N. 679, 716.

(308.) Professor Ochoa and Judge Wistrich state,

 [T]he loss of a valid claim on the ground of limitation of actions (or on any other procedural ground) impairs the implementation of substantive law policy. It results in the underenforcement of the substantive law by allowing some wrongdoers to escape liability for reasons unrelated to the objectives of the substantive law. Not only will some wrongdoers fail to receive their "just deserts," but they will also be underdeterred from future wrongdoing because they were not required to compensate their victims for the harm caused and to suffer the punishment of civil liability. Others who are instructed by their examples will also be less than optimally deterred from violating the substantive law rules. As a consequence, the substantive law rules will be followed less often than they would have been had the victims' claims not been barred by the limitation system.

Ochoa & Wistrich, supra note 40, at 506.

(309.) In re Merck & Co. Sec., Derivative & ERISA Litig.,543 F.3d 150, 172 n.16 (3d Cir. 2008).

(310.) Pac. Inv. Mgmt. Co. v. Mayer Brown L.L.P., 603 F.3d 144, 157(2d Cir. 2010) CA bright line rule ... has many benefits in application.[It] is relatively easy for district courts to apply and avoidsprotracted litigation and discovery .... Furthermore, as the SupremeCourt has explained, securities law is an area that demands certaintyand predictability. Uncertainty can lead to many undesirableconsequences, for example, newer and smaller companies may find itdifficult to obtain advice from professionals. A professional may fearthat a newer or smaller company may not survive and that businessfailure would generate securities litigation against the professional,among others. Uncertainty also increases the costs of doing business andraising capital.") (internal quotation marks and citationsomitted).

(311.) See supra Part III.B.3.

(312.) See De La Fuente v. DCI Telecomm., Inc., 82 F. App'x723, 724-26 (2d Cir. 2003) (nonprecedential decision affirming Rule 11sanctions against counsel that frivolously opposed dismissal ofsecurities claims barred by statute of repose).

(313.) See, e.g., Take-Two Interactive Software, Inc. v. Brant, No.06 Civ. 05279(LTS), 2010 WL 1257351, at *6 (S.D.N.Y. Mar. 30, 2010)(dismissing easily allegations that fell outside the five-year reposeperiod by relying solely on dates of alleged fraud); Plymouth CountyRet. Ass'n v. Schroeder, 576 F. Supp. 2d 360, 376 (E.D.N.Y. 2008)(same); In re Juniper Networks, Inc. Sec. Litig., 542 F. Supp. 2d 1037,1051 (N.D. Cal. 2008) (same); In re Affiliated Computer Servs.Derivative Litig., 540 F. Supp. 2d 695, 701 (N.D. Tex. 2007) (same).

(314.) See Ochoa & Wistrich, supra note 40, at 499.

(315.) See generally Murdock, supra note 157, at 186.

(316.) See Ochoa & Wistrich, supra note 40, at 499.

(317.) See supra note 73 and accompanying text.

MICHAEL J. KAUFMAN, Professor of Law and Associate Dean forAcademic Affairs at Loyola University Chicago School of Law.

JOHN M. WUNDERLICH, Stafflaw clerk for the United States Court ofAppeals for the Seventh Circuit; Loyola University Chicago School ofLaw, J.D. 2009. The views expressed in this Article do not reflect thoseof the United States Court of Appeals for the Seventh Circuit.