In recent years the Supreme Court has accrued a record overwhelmingly favoring defendants in securities class actions, so a few double takes were in order when, on April 27, the justices unanimously ruled in favor of the plaintiffs in Merck & Co., Inc. v. Reynolds.
The good news for corporate defendants in Section 10(b) private securities class actions is that the impact of Merck will likely be narrow within the securities fraud realm due to the case's novel circumstances.
The court relied on a pleading standard it established in the landmark 2007 securities case Tellabs, Inc. v. Makor Issues & Rights, Ltd. In that case the court wrote plaintiffs must show facts from which "a reasonable person would deem the inference of scienter cogent and at least as compelling as any opposing inference one could draw from the facts alleged."
The court's reasoning in Merck reaffirms that elevated hurdle for plaintiffs, Weiss says. "The pleading standard for alleging a defendant's scienter is in fact a heightened pleading standard," he says.