14‐0894‐cv
DeKalb Cty. Pension Fund v. Transocean Ltd.
In the
United States Court of Appeals
for the Second Circuit
AUGUST TERM 2015
No. 14‐0894‐cv
DEKALB COUNTY PENSION FUND,
on behalf of itself and all others similarly situated,
Plaintiff‐Appellant,
v.
TRANSOCEAN LTD., ROBERT L. LONG,
JON A MARSHALL, and TRANSOCEAN INC.,
Defendants‐Appellees.*
On Appeal from the United States District Court
for the Southern District of New York
ARGUED: AUGUST 18, 2015
DECIDED: MARCH 17, 2016
AMENDED: APRIL 29, 2016
The Clerk of Court is directed to amend the caption of this appeal as
*
indicated above.
Before: CABRANES, RAGGI, and WESLEY, Circuit Judges.
On appeal from the March 14, 2014 judgment of the United
States District Court for the Southern District of New York (Lorna G.
Schofield, Judge) dismissing as time‐barred by the applicable three‐
year statutes of repose the complaint of plaintiff‐appellant DeKalb
County Pension Fund (“DeKalb”) against defendants‐appellees
Transocean Ltd., Robert L. Long, Jon A. Marshall, and Transocean
Inc. for alleged violations of Sections 14(a) and 20(a) of the Securities
Exchange Act of 1934, 15 U.S.C. §§ 78n(a), 78t(a), and Securities and
Exchange Commission Rule 14a‐9, 17 C.F.R. § 240.14a‐9.
We hold that: (1) Sections 9(f) and 18(a) of the 1934 Act, 15
U.S.C. §§ 78i(f), 78r(a), provide “private right[s] of action that
involve[ ] a claim of fraud, deceit, manipulation, or contrivance,” to
which a five‐year statute of repose now applies after the passage of
the Sarbanes‐Oxley Act of 2002 (“SOX”), Pub. L. No. 107‐204, 116
Stat. 745, but that Section 14(a) does not provide such a private right
of action; (2) the same three‐year statutes of repose that applied to
Sections 9(f) and 18(a) before the passage of SOX, which we
borrowed and applied to Section 14 in Ceres Partners v. GEL
Associates, 918 F.2d 349 (2d Cir. 1990), still apply to Section 14(a)
today; (3) the statutes of repose applicable to Section 14(a) begin to
run on the date of the defendant’s last culpable act or omission; (4)
DeKalb’s lead‐plaintiff motion does not “relate back” under Rule
17(a)(3) of the Federal Rules of Civil Procedure to the filing of the
original class‐action complaint; (5) the Private Securities Litigation
2
Reform Act of 1995, Pub. L. No. 104‐67, 109 Stat. 737, does not toll
the statutes of repose applicable to Section 14(a); and (6) the tolling
rule that the Supreme Court described in American Pipe &
Construction Co. v. Utah, 414 U.S. 538 (1974), does not extend to the
statutes of repose applicable to Section 14(a).
Accordingly, we AFFIRM the District Court’s March 14, 2014
judgment dismissing DeKalb’s Section 14(a) claim as time‐barred by
the applicable three‐year statutes of repose and its Section 20(a)
claim for failure to state a claim upon which relief can be granted.
GEOFFREY M. JOHNSON (Thomas L.
Laughlin & David R. Scott, on the brief),
Scott+Scott LLP, New York, NY, for
Plaintiff‐Appellant.
JOHN W. SPIEGEL, Munger, Tolles & Olson
LLP, Los Angeles, CA, for Defendants‐
Appellees Transocean Ltd., Transocean Inc.,
and Robert T. Long.
Peter Ligh, Sutherland Asbill & Brennan
LLP, New York, NY, for Defendants‐
Appellees Transocean Ltd., Transocean Inc.,
and Robert T. Long.
Todd S. Fishman, Allen & Overy LLP, New
York, NY, for Defendant‐Appellee Jon A.
Marshall.
3
JOSÉ A. CABRANES, Circuit Judge:
A statute of limitations “creates a time limit for suing in a civil
case, based on the date when the claim accrued.”1 By contrast, a
statute of repose “puts an outer limit on the right to bring a civil
action[,] . . . measured not from the date on which the claim accrues
but instead from the date of the last culpable act or omission of the
defendant”—“in essence an absolute bar on a defendant’s temporal
liability.”2
This appeal concerns the latter, “relatively rare” species of
limitations period.3 Specifically, the principal questions presented
are the following: what statute of repose applies to Section 14(a) of
the Securities Exchange Act of 1934 (the “1934 Act”), 15 U.S.C.
§ 78n(a), and when does that statute of repose begin to run?
In conjunction with Securities and Exchange Commission
(“SEC”) Rule 14a‐9, 17 C.F.R. § 240.14a‐9, Section 14(a) prohibits
“solicitation . . . made by means of any proxy statement . . .
CTS Corp. v. Waldburger, 134 S. Ct. 2175, 2182 (2014) (internal quotation
1
marks omitted).
2 Id. at 2182–83 (alterations and internal quotation marks omitted).
3 See Christopher R. Leslie, Den of Inequity: The Case for Equitable Doctrines
in Rule 10b‐5 Cases, 81 Cal. L. Rev. 1587, 1642 (1993) (“[I]t bears repeating that
statutes of repose for federal causes of action are relatively rare.”).
4
containing any statement which . . . is false or misleading with
respect to any material fact.”4 Section 14(a) “do[es] not expressly
provide a private right of action,” but “[t]he Supreme Court [has]
recognized an implied private right of action for injury caused by
[its] violation.”5 Because the private right of action in Section 14(a) is
implied and not express, it is no surprise that a statute of repose is
not to be found in its text. “[W]e are [therefore] faced with the
awkward task of discerning the limitations period that Congress
intended courts to apply to a cause of action it really never knew
existed.”6
We have taken up this task before, some 25 years ago. In Ceres
Partners v. GEL Associates, 918 F.2d 349 (2d Cir. 1990), we concluded
that the implied private rights of action in Section 14 were
“analogous” to the express private rights of action in Sections 9(f)
and 18(a) of the 1934 Act, 15 U.S.C. §§ 78i(f),7 78r(a),8 in large part
Section 14(a) appears in a section of the 1934 Act titled “Proxies,” and
4
states that “[i]t shall be unlawful for any person, . . . in contravention of such
rules and regulations as the [SEC] may prescribe . . . , to solicit . . . any proxy or
consent or authorization in respect of [certain] securit[ies].” 15 U.S.C. § 78n(a).
Rule 14a‐9 is one such rule or regulation. See Wilson v. Great Am. Indus., 855 F.2d
987, 991 (2d Cir. 1988).
Grace v. Rosenstock, 228 F.3d 40, 47 (2d Cir. 2000) (citing J.I. Case Co. v.
5
Borak, 377 U.S. 426 (1964)).
Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 359
6
(1991).
Section 9(f) appears in a section of the 1934 Act titled “Manipulation of
7
security prices,” and states that “[a]ny person who willfully participates in any
act or transaction in violation of subsections (a), (b), or (c) of this section, shall be
5
because these actions share common goals.9 We then borrowed the
three‐year statutes of repose applicable to Sections 9(f) and 18(a) at
the time, and applied them to Section 14.10
liable to any person who shall purchase or sell any security at a price which was
affected by such act or transaction . . . .” 15 U.S.C. § 78i(f).
Section 18(a) appears in a section of the 1934 Act titled “Liability for
8
misleading statements,” and reads as follows:
Any person who shall make or cause to be made any statement in
any application, report, or document filed pursuant to this chapter
or any rule or regulation thereunder or any undertaking
contained in a registration statement as provided in subsection (d)
of section 78o of this title, which statement was at the time and in
the light of the circumstances under which it was made false or
misleading with respect to any material fact, shall be liable to any
person (not knowing that such statement was false or misleading)
who, in reliance upon such statement, shall have purchased or
sold a security at a price which was affected by such statement, for
damages caused by such reliance, unless the person sued shall
prove that he acted in good faith and had no knowledge that such
statement was false or misleading . . . .
15 U.S.C. § 78r(a).
9 See Ceres, 918 F.2d at 361–62. When Ceres and many of the other cases
discussed in this opinion were decided, the private right of action now contained
in Section 9(f) was contained in Section 9(e). To avoid confusion, we will refer
only to Section 9(f) here.
10 Id. The statute of repose then applicable to Section 9(f) stated that “[n]o
action shall be maintained to enforce any liability created under this section,
unless brought . . . within three years after [the] violation.” 15 U.S.C. § 78i(f).
Similarly, the statute of repose then applicable to Section 18(a) stated that “[n]o
action shall be maintained to enforce any liability created under this section
unless brought . . . within three years after [the] cause of action accrued.” Id.
§ 78r(c).
6
Approximately 12 years after we decided Ceres, however,
Congress passed the Sarbanes‐Oxley Act of 2002 (“SOX”), Pub. L.
No. 107‐204, 116 Stat. 745. Section 804(b) of SOX, now codified at 28
U.S.C. § 1658(b), extended to five years the statute of repose
applicable to certain “private right[s] of action that involve[ ] a claim
of fraud, deceit, manipulation, or contrivance.” Section 1658(b) thus
necessitates a reexamination of our holding in Ceres. Because in that
case we borrowed the three‐year statutes of repose then applicable
to Sections 9(f) and 18(a) and applied them to Section 14, we must
determine whether Sections 9(f), 18(a), or 14(a) provide “private
right[s] of action that involve[ ] a claim of fraud, deceit,
manipulation, or contrivance,” to which a five‐year statute of repose
would now apply.
We hold that Sections 9(f) and 18(a) do indeed provide
“private right[s] of action that involve[ ] a claim of fraud, deceit,
manipulation, or contrivance,” to which a five‐year statute of repose
now applies by virtue of the enactment of SOX, but that Section
14(a) does not provide such a private right of action. Accordingly,
borrowing the statute of repose applicable to Sections 9(f) and 18(a)
and applying it to Section 14 is no longer appropriate, because doing
so would frustrate, rather than “effect[,] Congress’ objectives in
enacting the securities laws.”11
We therefore hold that the same three‐year statutes of repose
we applied to Section 14 in Ceres—i.e., the three‐year statutes of
11 Musick, Peeler & Garrett v. Emp’rs Ins. of Wausau, 508 U.S. 286, 295 (1993).
7
repose that, until Congress passed SOX, applied to Sections 9(f) and
18(a)—still apply to Section 14(a) today. We further hold that, like all
statutes of repose, the statutes of repose applicable to Section 14(a)
begin to run on “the date of the [defendant’s] last culpable act or
omission.”12
Primarily for these reasons, we AFFIRM the March 14, 2014
judgment of the United States District Court for the Southern
District of New York (Lorna G. Schofield, Judge), dismissing the
Section 14(a) claim asserted by plaintiff‐appellant DeKalb County
Pension Fund (“DeKalb”) as time‐barred by the applicable three‐
year statutes of repose, and dismissing DeKalb’s claim under Section
20(a) of the 1934 Act, 15 U.S.C. § 78t(a), for failure to state a claim
upon which relief can be granted.
BACKGROUND
On October 2, 2007, GlobalSantaFe Corp. (“GSF”), “an
offshore oil and gas drilling contractor,” and defendant‐appellee
Transocean Inc. (“Transocean”), “one of the largest international
providers of offshore contract drilling services for oil and gas,”
jointly disseminated a proxy statement concerning a proposed
merger between the companies.13 The proxy statement included
12 Waldburger, 134 S. Ct. at 2182.
Joint Appendix (“J.A.”) 564, 566. Following its reorganization as a Swiss
13
company in 2008, “Transocean Inc.” changed its name to “Transocean Ltd.,” J.A.
570–71, which explains the presence of both names in the caption of this appeal.
The company will be referred to as “Transocean” throughout this opinion.
8
numerous representations regarding Transocean’s compliance with
various environmental laws, its training and safety programs, and
its equipment maintenance, among other subjects.14 GSF’s
shareholders, including DeKalb, approved the merger at a
November 9, 2007 shareholder meeting.15 Pursuant to the merger’s
terms, DeKalb exchanged each of its GSF shares for .4757
Transocean shares and a $22.46 cash payment.16
At the time of the merger, Transocean owned various offshore
oil‐drilling rigs throughout the world—including the now‐infamous
Deepwater Horizon, which exploded on April 20, 2010,
“causing . . . the worst oil spill in U.S. history.”17 In the wake of the
Deepwater Horizon disaster, Transocean’s stock lost more than half of
its value.18
On September 30, 2010, Bricklayers and Masons Local Union
No. 5, Ohio Pension Fund (“Bricklayers”) filed a class‐action
complaint against Transocean, as well as defendants‐appellees
Robert L. Long and Jon A. Marshall, the chief executive officers of
Transocean and GSF, respectively, at the time of the merger.19
Bricklayers alleged that the proxy statement disseminated in
14 J.A. 566.
15 J.A. 566, 569.
16 J.A. 564.
17 J.A. 564, 568.
18 J.A. 568–69.
19 J.A. 21, 26.
9
advance of the merger “contained false and material statements and
omissions regarding Transocean’s dangerously lax safety protocols
for oil drilling and reoccurring issues with [its] blowout
preventer . . . technology,” in violation of Section 14(a).20
DeKalb made its first appearance in the action on December 3,
2010, when it filed a motion to be appointed as lead plaintiff.21 The
District Court subsequently appointed as lead plaintiff “the DeKalb‐
Bricklayers Group,” which DeKalb and Bricklayers had formed
together in light of “their respective financial stakes in the litigation
and their mutual dedication to the prosecution of the action on
behalf of the named class.”22
On April 7, 2011, the DeKalb‐Bricklayers Group filed an
amended class‐action complaint, in which it asserted violations of
Section 14(a), Rule 14a‐9, and Section 20(a).23 “Section 20(a)
establishes secondary liability for ‘every person who, directly or
indirectly, controls any person’ directly liable under the” 1934 Act.24
“To state a claim of control person liability under [Section] 20(a), a
20 J.A. 22.
21 J.A. 387–88.
22 J.A. 446–48.
23 J.A. 450, 455.
Steginsky v. Xcelera Inc., 741 F.3d 365, 371 n.6 (2d Cir. 2014) (alterations
24
omitted) (quoting 15 U.S.C. § 78t(a)).
10
plaintiff must show,” inter alia, “a primary violation by the
controlled person.”25
On March 30, 2012, the District Court dismissed Bricklayers
from the action for lack of standing, finding that it had “failed to
proffer any facts showing that it was eligible to vote” on the merger
or “that it retained its Transocean stock after” the Deepwater Horizon
disaster.26 This dismissal left DeKalb as the sole lead plaintiff.
DeKalb filed a second amended class‐action complaint on April 18,
2012, in which it again asserted Section 14(a), Rule 14a‐9, and Section
20(a) claims.27
On August 30, 2013, defendants‐appellees filed a motion
under Rule 12(b)(6) of the Federal Rules of Civil Procedure to
dismiss DeKalb’s Section 14(a) claim on the ground that it was time‐
barred by the applicable statutes of repose, which motion the
District Court granted on March 14, 2014.28 In granting the motion,
the District Court borrowed the three‐year statutes of repose that
applied to Sections 9(f) and 18(a) before the passage of SOX and
applied them to DeKalb’s Section 14(a) claim, but did not address
whether SOX had extended Section 9(f)’s or Section 18(a)’s statutes
25 Carpenters Pension Tr. Fund of St. Louis v. Barclays PLC, 750 F.3d 227, 236
(2d Cir. 2014) (internal quotation marks omitted).
26 See Bricklayers & Masons Local Union No. 5 Ohio Pension Fund v.
Transocean Ltd., 866 F. Supp. 2d 223, 237 (S.D.N.Y. 2012).
27 J.A. 559, 564.
28 See DeKalb Cty. Pension Fund v. Transocean Ltd., 36 F. Supp. 3d 279, 280,
286 (S.D.N.Y. 2014).
11
of repose to five years, apparently assuming that it had not.29 The
District Court did, however, reject DeKalb’s argument that § 1658(b)
applies directly to Section 14(a).30 The District Court also held that
the applicable three‐year statutes of repose began to run on October
2, 2007, the date on which GSF and Transocean jointly disseminated
the allegedly false and misleading proxy statement; that the statutes
of repose therefore required DeKalb to have filed its Section 14(a)
claim before October 2, 2010; and that DeKalb’s Section 14(a) claim
was consequently time‐barred, inasmuch as DeKalb did not even
appear in the action until December 3, 2010, approximately two
months after the deadline had passed.31 The District Court also held
that, because a Section 20(a) claim “is necessarily predicated on a
primary violation of securities law, the dismissal of [DeKalb’s
Section] 14(a) claim necessarily mean[t] the dismissal of [DeKalb’s
Section] 20 claim as well.”32 DeKalb timely appealed.33
29 See id. at 282–84.
30 See id. See the text following note 10 for the relevant language from
§ 1658(b).
31 See id. at 284–85.
32 Id. at 286 (citation and internal quotation marks omitted).
33 J.A. 642–43.
12
DISCUSSION
“We review de novo the grant of a motion to dismiss under
Rule 12(b)(6) . . . , accepting as true the factual allegations in the
complaint and drawing all inferences in the plaintiff’s favor.”34
I. The Three‐Year Statutes of Repose that Applied to Sections 9(f)
and 18(a) Before the Passage of SOX Continue to Apply to
Section 14(a)
Before turning to the question of whether § 1658(b) applies to
Sections 9(f), 18(a), or 14(a), it will be helpful to briefly describe our
decision in Ceres, given its importance to our inquiry.
In Ceres, the plaintiff alleged violations of Section 10(b), 15
U.S.C. § 78j(b), Section 14(d), 15 U.S.C. § 78n(d), and Section 14(e), 15
U.S.C. § 78n(e), all of the 1934 Act, as well as SEC Rule 10b‐5, 17
C.F.R. § 240.10b‐5.35 As in this case, the plaintiff brought those claims
pursuant to implied private rights of action.36 The two questions
presented on appeal were whether those claims should be governed
by a “uniform federal limitary period,” instead of whatever statute
of repose applied to the most analogous state statute; and if so, what
Biro v. Conde Nast, 807 F.3d 541, 544 (2d Cir. 2015); see also Fed. Hous. Fin.
34
Agency v. UBS Ams. Inc., 712 F.3d 136, 140 (2d Cir. 2013) (reviewing de novo the
denial of a motion to dismiss an action as time‐barred by a statute of repose).
35 See 918 F.2d at 350.
36 See id. at 361–62.
13
that period should be.37 Answering the first question in the
affirmative, we moved to the second.38
We began by explaining that the 1934 Act “provides for a
number of private actions,” including those under Sections 9(f) and
18(a), and that the “goal of these sections, as for [Section] 10(b), is to
ensure full disclosure, to prohibit conduct recognized as
manipulative and deceptive, and to give the SEC the authority to
take steps to counter other conduct having the same effect. Thus, the
actions available under the 1934 Act share common goals.”39 We
then observed that the express private rights of action found in
Sections 9(f) and 18(a), “for which a . . . three‐year statute of [repose
was] provided[,] . . . are closely related to the right of action implied
under [Section] 10(b) and Rule 10b‐5,” and that there is also a
“permissible overlap between actions under [Section] 10(b) and
those under” Section 11 of the Securities Act of 1933 (the “1933 Act),
15 U.S.C. § 77k, to which a three‐year statute of repose also
37 Id. at 350. In Ceres, we used the term “statute of limitations” to refer to
both statutes of limitations and statutes of repose. The terms “are often
confused,” UBS Ams., 712 F.3d at 140 (internal quotation marks omitted), and
their “general usage . . . has not always been precise,” Waldburger, 134 S. Ct. at
2186. Notwithstanding the nomenclature that we employed, it is indisputable
that the three‐year component of the “one‐year/three‐year limitations period”
that we discussed in Ceres is a statute of repose, not a statute of limitations. See
Lampf, 501 U.S. at 362 (describing the same three‐year component as a “period of
repose”); see also In re Exxon Mobil Corp. Sec. Litig., 500 F.3d 189, 194 & n.6 (3d Cir.
2007) (same); Blaz v. Belfer, 368 F.3d 501, 503 (5th Cir. 2004) (same).
38 Ceres, 918 F.2d at 352–61.
39 Id. at 361 (citation omitted).
14
applied.40 Finally, because “Sections 14(d) and 14(e) of the 1934
Act . . . are similarly provisions designed to ensure that security
holders receive full disclosure,” they “substantially overlap”
Sections 9 and 18(a) and Rule 10b‐5 as well.41 Accordingly, we
concluded that since Congress has provided in Sections 9(f) and
18(a) express rights of action “that so substantially overlap” the
rights of action implied under Sections 10(b) and 14, “and has
provided a limitations period with respect to those express rights,
the specified period provides a far more appropriate analogy than
do state statutes devoted to different types of claims.”42
Thus, to summarize, we analogized the implied private rights
of action in Sections 10(b) and 14 of the 1934 Act to the express
private rights of action in Sections 9(f) and 18(a) of the 1934 Act and
Section 11 of the 1933 Act, on the basis of the common goals that
these actions share. We then borrowed the three‐year statutes of
repose applicable to the express private rights of action and applied
them to the implied private rights of action. Notably, however, we
did not take a position regarding to which of the express rights of
action the implied rights of action were most similar. That is, we did
not decide whether Sections 10(b) and 14 were more like Section 9(f),
Section 18(a), or Section 11. Of course, there was no need for us to do
40 Id.
41 Id. at 361–62.
42 Id. at 362.
15
so—at the time, Sections 9(f), 18(a), and 11 all had three‐year statutes
of repose.
It also bears mentioning that the Supreme Court expressed its
approval of Ceres in Lampf, Pleva, Lipkind, Prupis & Petigrow v.
Gilbertson, 501 U.S. 350 (1991). In Lampf, the Supreme Court took up
the question of “which statute of [repose] is applicable to a private
suit brought pursuant to” Section 10(b) and Rule 10b‐5.43 Just as we
had in Ceres, the Court looked to Sections 9(f) and 18(a) for its
answer, as those sections “target the precise dangers that are the
focus of [Section] 10(b).”44 According to the Court, all three sections
were “intended to facilitate a central goal: to protect investors
against manipulation of stock prices through regulation of
transactions upon securities exchanges and in over‐the‐counter
markets, and to impose regular reporting requirements on
companies whose stock is listed on national securities exchanges.”45
Additionally, the Court noted that, “[i]n adopting the 1934
Act, . . . Congress also amended the limitations provision of the 1933
Act,” adopting a three‐year statute of repose “for each cause of
action contained therein.”46
Thus, the Court found, “there can be no doubt that the[se]
contemporaneously enacted express remedial provisions represent a
43 501 U.S. at 352.
44 Id. at 360.
45 Id. at 360–61 (internal quotation marks omitted).
46 Id. at 360.
16
federal statute of [repose] actually designed to accommodate a
balance of interests very similar to that at stake” in Section 10(b) and
Rule 10b‐5.47 The Court therefore “agree[d] with every Court of
Appeals that ha[d] been called upon to apply a federal statute of
limitations to a [Section] 10(b) claim that the express causes of action
contained in the 1933 and 1934 Acts provide [the] appropriate”
statute of repose, and the Court cited Ceres in support of that
conclusion.48
A. Section 1658(b) Applies to Section 9(f)
We now turn to the question of whether § 1658(b) applies to
Section 9(f). Although neither the Supreme Court nor we have
previously addressed this issue, several lower courts have suggested
that it does.49 These decisions are sound. While it is true that
§ 1658(b) did not expressly repeal the limitations period in Section
9(f), “an implied repeal will . . . be found where provisions in two
47 Id. at 359 (internal quotation marks omitted).
48 Id. at 362 (citing Ceres, 918 F.2d 349).
49 See Silberstein v. Aetna, Inc., No. 13‐CV‐8759 (AJN), 2015 WL 1424058, at
*7 n.1 (S.D.N.Y. Mar. 26, 2015) (“[Section] 9(f) has . . . been amended to create
a . . . five‐year period for actions involving fraud or deceit by [SOX].”); Friedman
v. Rayovac Corp., 295 F. Supp. 2d 957, 974–75 (W.D. Wis. 2003) (“Although [SOX]
did not expressly repeal the limitations period in [Section 9(f)], to the extent that
the two statutes conflict, the more recent statute would control.”); see also Small v.
Arch Capital Grp., Ltd., No. 03‐CV‐5604 (JFK), 2005 WL 696903, at *7 (S.D.N.Y.
Mar. 24, 2005) (“The enactment of [SOX] . . . extended the [statute of]
limitations . . . in [Section 9(f)] to two years . . . .”).
17
statutes are in irreconcilable conflict.”50 This standard accurately
describes the relationship between § 1658(b) and Section 9(f).
As noted, § 1658(b) applies to “a private right of action that
involves a claim of fraud, deceit, manipulation, or contrivance.”51 In
view of this language, we agree with the Third and Fourth Circuits
that, at a minimum, Congress clearly intended it to apply to “claims
requiring proof of fraudulent intent.”52 A claim arising under
Section 9(f), “the statutory provision that governs securities price
manipulation claims,”53 is exactly that, as it “contain[s] requirements
of both manipulative motive and willfulness.”54 Thus, the statutes of
repose contained in § 1658(b) and Section 9(f) both purport to apply
to Section 9(f), but prescribe different periods of time. As such, they
“are in irreconcilable conflict,” and “the later [statute] to the extent
Carcieri v. Salazar, 555 U.S. 379, 395 (2009) (alteration and internal
50
quotation marks omitted).
51 28 U.S.C. § 1658(b).
In re Exxon Mobil Corp. Sec. Litig., 500 F.3d at 197; see also Jones v.
52
Southpeak Interactive Corp. of Del., 777 F.3d 658, 667–68 (4th Cir. 2015) (same).
53 Merck & Co. v. Reynolds, 559 U.S. 633, 646 (2010).
54 Crane Co. v. Westinghouse Air Brake Co., 419 F.2d 787, 794 (2d Cir. 1969);
see also Ernst & Ernst v. Hochfelder, 425 U.S. 185, 209 n.28 (1976) (holding that
Section 9(f) “contains a state‐of‐mind condition requiring something more than
negligence”); Chemetron Corp. v. Bus. Funds, Inc., 682 F.2d 1149, 1161 & n.18 (5th
Cir. 1982) (holding that Section 9(f) requires, inter alia, “a misstatement or
omission . . . of material fact . . . made with scienter” (internal quotation marks
omitted)), vacated and remanded on other grounds, 460 U.S. 1007 (1983).
18
of the conflict [therefore] constitutes an implied repeal of the earlier
one.”55
Relying primarily on a single sentence from a Senate Judiciary
Committee report, other lower courts have suggested that § 1658(b)
“was not intended to conflict with existing limitations periods for
any express private rights of action under the federal securities
laws” (such as Section 9(f)), but was instead intended to apply only
to express private rights of action lacking limitations periods or to
implied private rights of action (such as Section 10(b)).56 As the
Supreme Court has “repeatedly held,” however, “the authoritative
statement is the statutory text, not the legislative history or any other
extrinsic material.”57 In fact, the Court has cast a wary eye on the
specific type of report on which these district‐court decisions were
based:
[J]udicial reliance on legislative materials like
committee reports, which are not themselves subject to
the requirements of Article I, may give unrepresentative
committee members—or, worse yet, unelected staffers
and lobbyists—both the power and the incentive to
attempt strategic manipulations of legislative history to
Kremer v. Chem. Constr. Corp., 456 U.S. 461, 468 (1982) (internal
55
quotation marks omitted).
56 See, e.g., In re Metro. Sec. Litig., 532 F. Supp. 2d 1260, 1283–84 (E.D.
Wash. 2007) (internal quotation marks omitted) (quoting S. Rep. No. 107‐146, at
29 (2002) (Conf. Rep.)); In re Alstom SA Sec. Litig., 406 F. Supp. 2d 402, 415
(S.D.N.Y. 2005) (same).
57 Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 568 (2005).
19
secure results they were unable to achieve through the
statutory text.58
What is more, the particular report in question seems to be
especially unreliable. The specific sentence therefrom on which these
lower courts relied was preceded by the following introduction:
We believe current law likely provides an adequate
length of time in which people who have been
defrauded can file suit . . . . Regrettably, the sponsors of
[the original Senate version of the bill] prevailed in their
effort to extend the current statute of [repose], and we
would like to clarify our understanding of the intended
parameters of that extension.59
In other words, the sentence that formed the basis for these
decisions appears to have been drafted by those senators who lost
the battle to prevent § 1658(b)’s passage, and therefore may have
been engaging in the type of “strategic manipulations of legislative
58 Id.; see also Nw. Envtl. Def. Ctr. v. Bonneville Power Admin., 477 F.3d 668,
684 n.13 (9th Cir. 2007) (“Reports are usually written by staff or lobbyists, not
legislators; few if any legislators read the reports; they are not voted on by the
committee whose views they supposedly represent, much less by the full Senate
or House of Representatives; they cannot be amended or modified on the floor
by legislators who may disagree with the views expressed therein.” (internal
quotation marks omitted)).
59 S. Rep. No. 107‐146, at 28–29 (2002) (Conf. Rep.).
20
history” against which the Supreme Court has warned, in an effort
to curtail the effect of legislation they disfavored.60
Further, even if legislative history were driving our
determination, there would be plenty of other evidence to
counterbalance this language.61 We need not, however, resort to any
such evidence. “[C]ourts must presume that a legislature says in a
statute what it means and means in a statute what it says there.
When the words of a statute are unambiguous, then, this first canon
is also the last: judicial inquiry is complete.”62 Here, as discussed
above, § 1658(b) speaks for itself—by its terms, it applies to “private
right[s] of action that involve[ ] a claim of fraud, deceit,
manipulation, or contrivance,” not some subset thereof. 63
B. Section 1658(b) Applies to Section 18(a)
We next consider whether § 1658(b) applies to Section 18(a)—
another issue that we have not previously addressed, and on which
Exxon Mobil Corp., 545 U.S. at 568; see also Nw. Envtl. Def. Ctr., 477 F.3d
60
at 684 n.13 (“Committee reports often contain what some committee members
wanted in the bill, but did not get, and are often written . . . after a bill is passed.”
(internal quotation marks omitted)).
See, e.g., 148 Cong. Rec. S7418‐01 (daily ed. July 26, 2002) (statement of
61
Sen. Leahy) (stating that § 1658 is “meant . . . to govern all the already existing
private causes of action under the various federal securities laws that have been
held to support private causes of action” (emphasis supplied)).
Conn. Nat’l Bank v. Germain, 503 U.S. 249, 253–54 (1992) (citations and
62
internal quotation marks omitted).
63 28 U.S.C. § 1658(b).
21
lower courts in our Circuit have also split.64 This question is more
difficult to resolve, because unlike Section 9(f), Section 18(a) does not
require a plaintiff to plead or prove scienter (or, indeed, any
particular state of mind).65 But it does not necessarily follow that
Section 18(a) is not “a private right of action that involves a claim of
fraud, deceit, manipulation, or contrivance.”66
Section 1658(b) does not define “fraud.” As a result, we look
to its common‐law meaning, because “[i]t is a settled principle of
interpretation that, absent other indication, Congress intends to
Compare In re Pfizer Inc. Sec. Litig., 584 F. Supp. 2d 621, 641–42 (S.D.N.Y.
64
2008) (holding that § 1658(b) does not apply to Section 18(a)), with In re Adelphia
Commc’ns Corp. Sec. & Derivative Litig., No. 03‐MD‐1529 (LMM), 2005 WL
1679540, at *4 (S.D.N.Y. July 18, 2005) (holding that it does).
65 See Ross v. A.H. Robins Co., 607 F.2d 545, 555–56 (2d Cir. 1979) (“To
establish a [Section] 10(b) violation, the plaintiff must plead and prove that the
defendant acted with scienter in making a material misstatement or omission. A
plaintiff seeking recovery under [Section] 18 faces a significantly lighter burden.
He must merely plead and prove that a document filed with the [SEC] contains a
material misstatement or omission. If he can show reliance on that statement,
liability is established . . . .” (emphasis removed)); see also Deephaven Private
Placement Trading, Ltd. v. Grant Thornton & Co., 454 F.3d 1168, 1172 (10th Cir.
2006) (“[T]he district court erred in holding that a claim under Section 18(a)
requires [a plaintiff] to plead scienter.”); In re Suprema Specialties, Inc. Sec. Litig.,
438 F.3d 256, 283 (3d Cir. 2006) (“A Section 18 plaintiff . . . bears no burden of
proving that the defendant acted with scienter or any particular state of mind.”);
In re Stone & Webster, Inc., Sec. Litig., 414 F.3d 187, 193 (1st Cir. 2005) (“Under
[Section 18(a)], . . . a plaintiff bears no burden of proving that the defendant acted
with any particular state of mind.”).
66 28 U.S.C. § 1658(b).
22
incorporate the well‐settled meaning of the common‐law terms it
uses.”67
The eighth edition of Black’s Law Dictionary—which is the
edition published closest in time to the passage of SOX68—defines
“fraud” in pertinent part as follows: “1. A knowing
misrepresentation of the truth or concealment of a material fact to
induce another to act to his or her detriment. . . . 2. A
misrepresentation made recklessly without belief in its truth to
induce another person to act.”69 The question, then, is whether
Section 18(a) “involves a claim of a knowing misrepresentation of
the truth or concealment of a material fact to induce another to act to
his or her detriment,” or “involves a claim of a misrepresentation
made recklessly without belief in its truth to induce another person
to act.” We conclude that it does.
United States v. Castleman, 134 S. Ct. 1405, 1410 (2014) (internal quotation
67
marks omitted); see also United States v. Coplan, 703 F.3d 46, 59–60 (2d Cir. 2012)
(interpreting “fraud” and “defraud” according to their established common‐law
meanings); cf. Antonin Scalia & Brian A. Garner, Reading Law: The Interpretation of
Legal Texts 320 & n.6 (2012) (noting that this “age‐old principle . . . has been
applied to such terms as . . . fraud”).
68 See Sandifer v. U.S. Steel Corp., 134 S. Ct. 870, 876 (2014) (interpreting a
statutory term “as taking [its] . . . common meaning” from “the era of [the
statute’s] enactment” (internal quotation marks omitted)).
69 Fraud, Black’s Law Dictionary (8th ed. 2004); cf. McCullen v. Coakley, 134 S.
Ct. 2518, 2547 (2014) (Scalia, J., concurring in the judgment) (referring to Black’s
Law Dictionary to determine the common‐law meaning of a statutory term);
Schiller v. Tower Semiconductor Ltd., 449 F.3d 286, 300 (2d Cir. 2006) (referring to
Black’s Law Dictionary to determine the “well‐accepted meanings” of terms used
in the securities laws).
23
On its face, Section 18(a) unquestionably “involves a claim of
a misrepresentation made . . . to induce another person to act.”70
And the Supreme Court has strongly indicated that, in order for a
plaintiff to recover under Section 18(a), such a misrepresentation
also must have been made knowingly or recklessly, at the very least.
In Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976), the Court
stated that Section 18(a) “contains a state‐of‐mind condition
requiring something more than negligence,” and that its “legislative
history . . . suggests something more than negligence on the part of
the defendant is required for recovery.”71 Relying on this language,
we noted in Ross v. A.H. Robins Co., 607 F.2d 545 (2d Cir. 1979), that
“a party may not be held liable under [Section] 10(b) unless he acted
with scienter. It may well be that a similar requirement attaches to
[Section] 18 liability.”72 The Supreme Court used even stronger
language in Musick, Peeler & Garrett v. Employers Insurance of Wausau,
508 U.S. 286 (1993), in which it stated that Section 18(a) “involve[s]
defendants who have violated the securities law with scienter”;
70 See 15 U.S.C. § 78r(a) (“Any person who shall make or cause to be made
any statement . . . , which statement was at the time and in the light of the
circumstances under which it was made false or misleading with respect to any
material fact, shall be liable to any person . . . who, in reliance upon such statement,
shall have purchased or sold a security at a price which was affected by such
statement . . . . ” (emphasis supplied)); see also Cent. Bank of Denver, N.A. v. First
Interstate Bank of Denver, N.A., 511 U.S. 164, 178 (1994) (discussing Section 18(a)’s
“reliance requirement” (internal quotation marks omitted)).
71 425 U.S. at 209 n.28, 211 n.31.
72 607 F.2d at 555.
24
contrasted Section 18(a) with Sections 11 and 12 of the 1933 Act, 15
U.S.C. §§ 77k, 77l, and Section 16 of the 1934 Act, 15 U.S.C. § 78p,
which “do not require scienter in all instances”; and described
Section 18(a) as prohibiting an “intentional tort[ ].”73
In light of the Court’s statement that Section 18(a) requires
“scienter,” it is useful to define that term. For purposes of the
securities laws, the Supreme Court has defined it as “a mental state
embracing intent to deceive, manipulate, or defraud.”74 This
definition corresponds almost exactly to § 1658(b)’s references to
“deceit,” “manipulation,” and “fraud.”75 Moreover, the Supreme
Court has explained that “the intent motivating [Section 18(a)] is . . .
to deter fraud and manipulative practices in the securities markets,”76
and we have explained that one of Section 18(a)’s goals is to
“prohibit conduct recognized as manipulative and deceptive”77—
73 508 U.S. at 296–97. As the Supreme Court has explained, “[i]ntentional
torts . . . , as distinguished from negligent or reckless torts, generally require that
the actor intend the consequences of an act, not simply the act itself.” Straub v.
Proctor Hosp., 562 U.S. 411, 417 (2011) (alterations, emphasis, and internal
quotation marks omitted).
74 Hochfelder, 425 U.S. at 193 & n.12; accord United States v. Newman, 773
F.3d 438, 447 (2d Cir. 2014) (same); Scienter, Black’s Law Dictionary (10th ed. 2014)
(defining “scienter” in part as “[a] mental state consisting in an intent to deceive,
manipulate, or defraud,” and noting that “[i]n this sense, the term is used most
often in the context of securities fraud”).
75 See 28 U.S.C. § 1658(b).
Musick, 508 U.S. at 296 (emphasis supplied) (internal quotation marks
76
omitted).
77 Ceres, 918 F.2d at 361 (emphasis supplied).
25
language that, like the definition of “scienter,” matches § 1658(b)’s
references to “fraud,” “manipulation” and “deceit.”78
We also think it significant that Section 18(a) imposes liability
“unless the person sued shall prove that he acted in good faith and
had no knowledge that such statement was false or misleading.”79
The presence of this good‐faith defense means that, as a practical
matter, Section 18(a) actions will generally involve proof of a
defendant’s state of mind, and recovery will be permitted only
where a defendant acted, at a minimum, recklessly. Congress’s
inclusion of this defense thus further demonstrates that it intended
Section 18(a) to reach only fraudulent misrepresentations, rather
than negligent or innocent ones.80
78 28 U.S.C. § 1658(b); see also Lampf, 501 U.S. at 360–61 (stating that
Section 18(a) “was intended to facilitate a central goal: to protect investors
against manipulation of stock prices” (emphasis supplied) (internal quotation
marks omitted)).
79 15 U.S.C. § 78r(a).
80 We also note that a good‐faith defense such as that contained in Section
18(a) makes perfect sense in the context of a private right of action that involves a
misrepresentation “made recklessly without belief in its truth,” but would make
far less sense in the context of a private right of action that involved a
misrepresentation made merely negligently, or that imposed strict liability. Cf.
Nelson v. First Nat’l Bank & Trust Co. of Williston, 543 F.3d 432, 436 (8th Cir. 2008)
(suggesting “that a negligent act can[ ] be made in good faith”); United States v.
Dowlin, 408 F.3d 647, 667 (10th Cir. 2005) (affirming jury instructions that “[a]n
honest belief or good faith belief by the defendants that the statements or
representations made were true is a complete and total defense to the charge of
securities fraud” (internal quotation marks omitted)); Mortenson v. Nat’l Union
26
Lastly, we have explicitly stated that Section 18(a) “create[s]
[a] private right[ ] of action for various types of fraud,”81 and we
have described a violation of Section 18(a) as “fraud” on at least one
other occasion.82
Taken together, these factors lead us to join the Fifth Circuit in
concluding that, like Section 9(f), Section 18(a) is governed by
§ 1658(b).83 A plaintiff asserting a Section 18(a) claim is, in essence,
asserting a fraud claim—a fraud claim with respect to which the
defendant, and not the plaintiff, uncharacteristically bears the
burden of proof regarding the defendant’s state of mind, but a fraud
claim no less.84
Fire Ins. Co. of Pittsburgh, 249 F.3d 667, 670 (7th Cir. 2001) (stating that, as
concerns “strict liability crimes, . . . [a] defendant’s state of mind is irrelevant”).
81 Ceres, 918 F.2d at 361 (emphasis supplied).
82 See Kahn v. Kohlberg, Kravis, Roberts & Co., 970 F.2d 1030, 1037 (2d Cir.
1992) (discussing a Section 18(a) claim for “fraud in connection with a
registration statement”).
See Blaz, 368 F.3d at 503 (“Pursuant to . . . § 1658(b) . . . , th[e] statute of
83
repose [in Section 18(c) of the 1934 Act] . . . has been extended to five years . . . .”).
84 Cf. Ross, 607 F.2d at 556 (suggesting that “the defendant’s state of mind”
is relevant to a Section 18(a) claim, and that “the ultimate outcome of the
litigation may hinge upon who bears the burden of establishing” it); Deephaven
Private Placement Trading, Ltd., 454 F.3d at 1172 (suggesting that “[t]he state of
mind with which the defendant acted” is relevant to a Section 18(a) claim, but
that it “enters the case as a defense”); Magna Inv. Corp. v. John Does One Through
Two Hundred, 931 F.2d 38, 40 (11th Cir. 1991) (suggesting that a defendant’s “bad
faith” is relevant to a Section 18(a) claim, but that the plaintiff does not bear the
burden of proving it).
27
Lest our holding that Section 18(a) is governed by § 1658
engender confusion in other contexts, we reiterate that Section 18(a)
does not require a plaintiff to plead or prove “any particular state of
mind,”85 and that “it is the defendant’s burden to prove, in the
context of [S]ection 18[(a)], that it acted in good faith.”86
C. Section 1658(b) Does Not Apply to Section 14(a)
The import of the foregoing analysis is that the landscape has
fundamentally changed since we decided Ceres. To recapitulate, in
Ceres, our primary points of reference for determining which statute
of repose applies to Section 14 were the statutes of repose that
applied to Sections 9(f) and 18(a) before the passage of SOX. But
§ 1658(b) has since extended those statutes of repose to five years.87
Thus, if we were to take the same analytical approach that we
took in Ceres to the question before us today—i.e., borrow the
statutes of repose applicable to Sections 9(f) and 18(a)—the statute of
repose applicable to Section 14(a) would be five years. But this
would be an absurd result, undeniably contrary to clearly expressed
congressional intent, and would frustrate, rather than “effect[,]
In re Suprema Specialties, Inc. Sec. Litig., 438 F.3d at 283; see also In re Stone
85
& Webster, Inc., Sec. Litig., 414 F.3d at 193 (same).
86 Magna Inv. Corp., 931 F.2d at 40.
It should be noted that the Supreme Court has held that § 1658(b) also
87
extended to five years the statute of repose applicable to Section 10(b). See Merck,
559 U.S. at 638 (applying § 1658(b) to Section 10(b)); see also Staehr v. Hartford Fin.
Servs. Grp., Inc., 547 F.3d 406, 411 (2d Cir. 2008) (same).
28
Congress’ objectives in enacting the securities laws.”88 We would,
essentially, be applying § 1658(b) to Section 14(a), albeit indirectly.
And yet, Congress has specified that § 1658(b) applies only to
“private right[s] of action that involve[ ] a claim of fraud, deceit,
manipulation, or contrivance,”89 which Section 14(a) does not.90
Confronted, then, with one of the “inevitable . . . difficult
problems regarding the interplay of the [1934 Act’s] express and
implied remedies” that we predicted “such a complex scheme of
regulation” would “spawn,”91 we resort to a simpler methodology.
88 Musick, 508 U.S. at 295.
89 28 U.S.C. § 1658.
90 See Wilson, 855 F.2d at 995 (“Under Rule 14a‐9, plaintiffs need not
demonstrate that the omissions and misrepresentations resulted from knowing
conduct undertaken by the director defendants with an intent to deceive.
Liability can be imposed for negligently drafting a proxy statement.” (citation
omitted)); see also Beck v. Dobrowski, 559 F.3d 680, 682 (7th Cir. 2009) (“There is no
required state of mind for a violation of section 14(a); a proxy solicitation that
contains a misleading misrepresentation or omission violates the section even if
the issuer believed in perfect good faith that there was nothing misleading in the
proxy materials.”); In re Exxon Mobil Corp. Sec. Litig., 500 F.3d at 196 (“Violations
of § 14(a) . . . may be committed without scienter; in other words, no culpable
intent is required.”). But see SEC v. Das, 723 F.3d 943, 953 (8th Cir. 2013) (noting
that the Eighth Circuit has “concluded that scienter is an element, at least for
Rule 14a‐9 claims against outside directors and accountants” (alterations and
internal quotation marks omitted)); Ind. State Dist. Council of Laborers & Hod
Carriers Pension & Welfare Fund v. Omnicare, Inc., 719 F.3d 498, 507 n.3 (6th Cir.
2013) (“In this Circuit § 14(a) does in fact require proof of scienter to state a
claim.”), vacated and remanded on other grounds sub nom. Omnicare, Inc. v. Laborers
Dist. Council Constr. Indus. Pension Fund, 135 S. Ct. 1318 (2015).
91 Ross, 607 F.2d at 551.
29
“We assume that Congress is aware of existing law when it
passes legislation.”92 Thus, we presume that, when Congress passed
SOX, it was “aware of [two features of] the judicial background
against which it [was] legislat[ing]”93: (1) Ceres and many similar
decisions borrowing the three‐year statutes of repose then applicable
to Sections 9(f) and 18(a) and applying them to Section 14(a);94 and
(2) myriad decisions holding that “[l]iability can be imposed [under
Section 14(a)] for negligently drafting a proxy statement.”95 Put
92 Miles v. Apex Marine Corp., 498 U.S. 19, 32 (1990); see also Cannon v. Univ.
of Chi., 441 U.S. 677, 696–97 (1979) (“It is always appropriate to assume that our
elected representatives, like other citizens, know the law . . . .”).
93 Siebert v. Conservative Party of N.Y. State, 724 F.2d 334, 337 (2d Cir. 1983).
94 See Ceres, 918 F.2d at 364; Westinghouse Elec. Corp. by Levit v. Franklin,
993 F.2d 349, 353 (3d Cir. 1993) (“[W]e find that Section 14(a) claims . . . are
similar and related to explicit causes of action enumerated in the [1934 Act] for
which Congress did expressly provide a limitations period of . . . in no event
more than three years after such violation.” (internal quotation marks omitted));
Gilliam v. Hobert, 952 F. Supp. 319, 322 (W.D. Va. 1997) (implicitly holding that a
three‐year statute of repose applies to Section 14(a)); Hamilton v. Cunningham, 880
F. Supp. 1407, 1411 (D. Colo. 1995) (“[T]he . . . three‐year limitations period
governs . . . § 14(a) claims . . . .”).
95 Wilson, 855 F.2d at 995; see also Herskowitz v. Nutri/Sys., Inc., 857 F.2d
179, 190 (3d Cir. 1988) (“A material misrepresentation even when made
negligently rather than intentionally or recklessly, can still inflict the anticipated
harm, and is thus deemed actionable.”); Shidler v. All Am. Life & Fin. Corp., 775
F.2d 917, 927 (8th Cir. 1985) (affirming the district court’s dismissal of the
plaintiffs’ Section 14(a) claim “[b]ecause the defendants were not negligent”);
SEC v. Arthur Young & Co., 590 F.2d 785, 787 (9th Cir. 1979) (“assum[ing], without
deciding, that in a statutory enforcement proceeding [brought by the SEC],
negligence, rather than scienter, constitutes the standard by which an
accountant’s or auditor’s performance must be measured” under Section 14(a));
Gruss v. Curtis Publ’g Co., 534 F.2d 1396, 1403 (2d Cir. 1976) (describing
30
differently, Congress must have known that, by extending only the
statute of repose applicable to “private right[s] of action that
involve[ ] a claim of fraud, deceit, manipulation, or contrivance,”96
the statutes of repose applicable to Section 14(a) would remain
intact. And from this knowledge, we conclude that Congress
“affirmatively intended to preserve” them.97 We therefore hold that
“negligence” as “the standard of culpability we have held applicable as a
minimum in damage suits for violations of” Section 14(a)); Gould v. Am.‐Hawaiian
S.S., 535 F.2d 761, 777 (3d Cir. 1976) (“[T]he district court held negligence to be
the appropriate standard under section 14(a) and we agree.”); Republic Tech.
Fund, Inc. v. Lionel Corp., 483 F.2d 540, 551 n.11 (2d Cir. 1973) (holding that
“negligence alone suffices to establish culpability” under Section 14(a) (emphasis
in original)); Gerstle v. Gamble‐Skogmo, Inc., 478 F.2d 1281, 1300–01 (2d Cir. 1973)
(“[W]here the plaintiffs represent the very class who were asked to approve a
merger on the basis of a misleading proxy statement and are seeking
compensation from the beneficiary who is responsible for the preparation of the
statement, they are not required to establish any evil motive or even reckless
disregard of the facts.”); Dasho v. Susquehanna Corp., 461 F.2d 11, 29 & n.45 (7th
Cir. 1972) (holding that, under Section 14(a), “[t]he ‘scienter’ required in common
law fraud is not necessary”); cf. Hochfelder, 425 U.S. at 209 n.28 (“[S]ome courts
have concluded that proof of scienter is unnecessary in an action [under Section
14(a)] for damages by the shareholder recipients of a materially misleading proxy
statement against the issuer corporation.”). But see Adams v. Standard Knitting
Mills, Inc., 623 F.2d 422, 428 (6th Cir. 1980) (“conclud[ing] that scienter should be
an element of liability in private suits under [Section 14(a)] as they apply to
outside accountants”).
96 28 U.S.C. § 1658(b).
97 See Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353,
381–82 (1982) (“[T]he fact that a comprehensive reexamination and significant
amendment of the [statute] left intact the statutory provisions under which the
federal courts had implied a cause of action is itself evidence that Congress
affirmatively intended to preserve that remedy.”); see also Fiero v. Fin. Indus.
Regulatory Auth., Inc., 660 F.3d 569, 577 (2d Cir. 2011) (finding significant that the
31
the same three‐year statutes of repose that we applied to Section 14
in Ceres—which are the three‐year statutes of repose that, until
Congress passed SOX, applied to Sections 9(f) and 18(a)—still apply
to Section 14(a) today.
II. The Three Year Statutes of Repose Applicable to Section 14(a)
Begin to Run on the Date of the Defendant’s Last Culpable Act
or Omission
Having concluded that Section 14(a)’s three‐year repose
period is not affected by § 1658(b), we must now determine when
that period begins to run.
The three‐year statute of repose previously applicable to
Section 9(f) stated that “[n]o action shall be maintained to enforce
any liability created under this section, unless brought . . . within
three years after such violation,”98 while the three‐year statute of
repose previously applicable to Section 18(a) stated that “[n]o action
shall be maintained to enforce any liability created under this section
unless brought . . . within three years after such cause of action
accrued.”99 In the case before us, DeKalb argues that, because of this
difference in language, we must choose between the two standards,
Financial Industry Regulatory Authority’s (“FINRA”) “reliance upon
[alternative] enforcement methods was known to Congress, [but] Congress left
that reliance unaltered” in subsequent legislation, in holding that FINRA was
“not authorized to enforce the collection of its fines through the courts”).
98 15 U.S.C. § 78i(f) (emphasis supplied).
99 Id. § 78r(c) (emphasis supplied).
32
and urges us to pick Section 18(a)’s “accrual” standard rather than
Section 9(f)’s “violation” standard.100 According to DeKalb, its
Section 14(a) claim is timely under the “accrual” standard, because it
“accrued on April 20, 2010, the date the Deepwater Horizon disaster
revealed that . . . Transocean had systematically violated numerous
health, safety and environmental laws on the Deepwater Horizon
drilling rig and on a company‐wide basis.”101
DeKalb cites Lampf, arguing that it requires us to determine
which section is most analogous to Section 14(a) and then to apply
that section’s repose language to Section 14(a). We are not
persuaded. In Lampf, the Supreme Court recognized that the 1934
Act’s statutes of repose, including those in Sections 9(f) and 18(a), all
“relate to . . . three years after violation,” regardless of any differences
in statutory language.102 Thus, we conclude that, when applying a
statute of repose, we do not need to choose between these two
standards, because Lampf dictates the same result.
In urging otherwise, DeKalb invokes “the discovery rule,”
pursuant to which, “where a plaintiff has been injured by fraud and
remains in ignorance of it without any fault or want of diligence or
care on [its] part, the bar of the statute does not begin to run until
100 See Pl.’s Br. 34.
Id. at 36. See Gabelli v. SEC, 133 S. Ct. 1216, 1220 (2013) (holding, in the
101
context of a statute of limitations, that the “standard rule” is that “a claim accrues
when the plaintiff has a complete and present cause of action” (internal
quotation marks omitted)).
102 501 U.S. at 355 n.2 (emphasis supplied); see also id. at 360 & n.6.
33
the fraud is discovered,” or until “it could have been discovered”
“in the exercise of reasonable diligence.”103 This argument fails not
only because, as explained in Part I of this opinion, Section 14(a)
claims do not demand fraud, but also because the discovery rule
does not extend to statutes of repose. As courts have observed,
statutes of repose “are surgical strikes by the legislature against the
discovery rule”104 that consequently “override[ ]” it.105 And the
Supreme Court has unambiguously characterized the three‐year
limitations period previously applicable to Section 18(a) as a statute
of “repose,” not a statute of limitations.106
We are bound by this characterization—with which, it should
be noted, DeKalb agrees.107 In any event, holding that the statutes of
repose applicable to Section 14(a) begin to run only when the alleged
claim was or could have been discovered—an inherently fluid
Gabelli, 133 S. Ct. at 1221 (internal quotation marks omitted).
103
Hinkle by Hinkle v. Henderson, 85 F.3d 298, 302 (7th Cir. 1996) (citation
104
omitted).
Chang v. Baxter Healthcare Corp., 599 F.3d 728, 733 (7th Cir. 2010); see also
105
Wike v. Vertrue, Inc., 566 F.3d 590, 595 (6th Cir. 2009) (“[A] statute of repose [is]
not subject to a discovery rule . . . .”); Archer v. Nissan Motor Acceptance Corp., 550
F.3d 506, 508 (5th Cir. 2008) (suggesting that the discovery rule does not apply to
statutes of repose); cf. Waldburger, 134 S. Ct. at 2180, 2187–89 (holding that a
federal statute’s discovery rule preempted state statutes of limitations but not
state statutes of repose).
106 See Lampf, 501 U.S. at 360 & n.6; see also In re Exxon Mobil Corp. Sec.
Litig., 500 F.3d at 194; Blaz, 368 F.3d at 503.
See, e.g., Pl.’s Br. at ii, 34 (“DeKalb’s Section 14(a) Claim Is Timely
107
Under Section 18(a) [sic] Statute of Repose”).
34
calculus—would defeat their “distinct purpose,” which is to “effect a
legislative judgment that a defendant should be free from liability
after the legislatively determined period of time.”108 Indeed, an
“injury need not [even] have occurred, much less have been
discovered,” for a statute of repose to begin to run.109 Instead, the
statutory period is “measured . . . from the date of the [defendant’s]
last culpable act or omission.”110
Accordingly, we hold that the three‐year statutes of repose
applicable to Section 14(a) begin to run on the date of the
violation,111 which we consider to be the date of the defendant’s last
culpable act or omission.112 Because Section 14(a) and Rule 14a‐9
jointly prohibit “solicitation . . . made by means of any proxy
statement . . . containing any statement which . . . is false or
misleading with respect to any material fact,”113 the relevant date in
this case was October 2, 2007, when GSF and Transocean jointly
108 Waldburger, 134 S. Ct. at 2183 (internal quotation marks omitted).
109 Id. at 2182 (emphasis supplied) (internal quotation marks omitted).
110 Id.
111 See Westinghouse, 993 F.2d at 353 (concluding that, “like Section 10(b)
claims,” Section 14(a) claims “are similar and related to explicit causes of
action . . . for which Congress did expressly provide a limitations period of . . . in
no event more than three years after such violation” (internal quotation marks
omitted)).
112 See Waldburger, 134 S. Ct. at 2182 (explaining that statutes of repose
“are measured not from the date on which the claim accrues but instead from the
date of the last culpable act or omission of the defendant”).
113 17 C.F.R. § 240.14a‐9(a); see also ante note 4.
35
disseminated the allegedly false and misleading proxy statement.114
DeKalb therefore had until October 2, 2010 to file its Section 14(a)
claim, but it did not appear in the action until December 3, 2010.115
As a result, DeKalb’s claim is time barred.
III. DeKalb’s Lead‐Plaintiff Motion Does Not “Relate Back” Under
Rule 17(a)(3) of the Federal Rules of Civil Procedure to
Bricklayers’ Filing of the Original Class Action Complaint
DeKalb also argues that, even if it did not appear in the action
until after the applicable statutes of repose had run, “the District
Court’s opinion would still need to be reversed [or] remanded
because [Bricklayers’] original class action complaint was timely
filed” on September 30, 2010, and DeKalb’s “lead plaintiff motion [of
December 3, 2010] relates back to the initial filing.”116 In making this
argument, DeKalb relies on Rule 17(a)(3) of the Federal Rules of
Civil Procedure, which provides the following:
The court may not dismiss an action for failure to
prosecute in the name of the real party in interest until,
after an objection, a reasonable time has been allowed
for the real party in interest to ratify, join, or be
substituted into the action. After ratification, joinder, or
114 J.A. 564, 566. Cf. Lampf, 501 U.S. at 364 (concluding that plaintiffs’
Section 10(b) claims were untimely because they were brought “more than three
years after petitioner’s alleged misrepresentations”).
J.A. 387–88.
115
Pl.’s Br. 39–40.
116
36
substitution, the action proceeds as if it had been
originally commenced by the real party in interest.
According to DeKalb, “the consolidated complaint naming
DeKalb as a lead plaintiff should be deemed timely filed on
September 30, 2010 because DeKalb was substituted in as the ‘real
party in interest.’”117
Rule 17(a)(3), however, has no bearing here. That rule “was
added . . . to avoid forfeiture and injustice when an understandable
mistake has been made in selecting the party in whose name the
action should be brought” and “codifie[d] the modern judicial
tendency to be lenient when an honest mistake has been made in
selecting the proper plaintiff.”118 DeKalb has not even suggested that
whatever “mistake” may have led to its tardy appearance was
“understandable” or “honest,” nor pointed to a “semblance of any
reasonable basis” therefor.119 Rather, “through minimal diligence,
[DeKalb] could have avoided the operation of the . . . statute of
repose simply by making [a] timely motion[ ] to intervene in the
Pl.’s Br. 40.
117
Cortlandt St. Recovery Corp. v. Hellas Telecomms., S.à.r.l., 790 F.3d 411,
118
421 (2d Cir. 2015) (emphasis supplied) (internal quotation marks omitted).
Advanced Magnetics, Inc. v. Bayfront Partners, Inc., 106 F.3d 11, 20 (2d
119
Cir. 1997).
37
action as [a] named plaintiff[ ], or by filing [its] own timely
action[ ].”120
In any event, DeKalb’s lead‐plaintiff motion cannot relate
back to Bricklayers’ complaint, because that complaint “was a
nullity.”121 Bricklayers was not dismissed because it lacked standing
to assert DeKalb’s claims—it was dismissed because it lacked
standing to assert its own claims. In other words, this is simply not a
“situation[ ] in which it [was] unclear at the time the action [was]
filed who had the right to sue and it [was] subsequently determined
that the right belonged to a party other than the party that instituted
the action.”122 Accordingly, we will not “distort[ ]” Rule 17(a)(3) to
allow DeKalb “to circumvent the limitations period.”123
Police & Fire Ret. Sys. of City of Detroit v. IndyMac MBS, Inc., 721 F.3d 95,
120
112 (2d Cir. 2013).
See Cortlandt St., 790 F.3d at 423 (“[I]n the absence of a plaintiff with
121
standing, this lawsuit was a nullity, and there was therefore no lawsuit pending
for the real party in interest to ‘ratify, join, or be substituted into’ under Rule
17(a)(3) or otherwise.”).
Del Re v. Prudential Lines, Inc., 669 F.2d 93, 96 (2d Cir. 1982).
122
See Gardner v. State Farm Fire & Cas. Co., 544 F.3d 553, 563 (3d Cir. 2008)
123
(internal quotation marks omitted); cf. 6A Charles Alan Wright et al., Federal
Practice and Procedure § 1555 (3d ed. 2010) (“[I]t has been held that when the
determination of the right party to bring the action was not difficult and when no
excusable mistake had been made, then Rule 17(a)(3) is not applicable and the
action should be dismissed.”).
38
IV. The Private Securities Litigation Reform Act of 1995 Does Not
Toll the Statutes of Repose Applicable to Section 14(a)
DeKalb further claims that “the 60‐day period provided by the
[Private Securities Litigation Reform Act of 1995 (“PSLRA”), Pub. L.
No. 104‐67, 109 Stat. 737,] for members of the prospective class to
move for appointment should legally toll the statute of repose.”124
DeKalb devotes a single paragraph to this argument. And no
wonder—it is a difficult one to fathom. The section of the PSLRA to
which DeKalb appears to be referring reads as follows, in pertinent
part:
Not later than 20 days after the date on which the
complaint is filed, the plaintiff . . . shall cause to be
published . . . a notice advising members of the
purported plaintiff class . . . that, not later than 60 days
after the date on which the notice is published, any
member of the purported class may move the court to
serve as lead plaintiff of the purported class.125
Nothing about this language even remotely suggests that the
PSLRA was intended to toll the applicable statutes of repose for the
60 days during which a member of the purported class may file a
lead‐plaintiff motion, and we have been unable to locate any
authority that even arguably supports this notion. Perhaps tellingly,
Pl.’s Br. 41.
124
15 U.S.C. § 78u‐4(a)(3)(A)(i).
125
39
DeKalb cites none. We therefore reject DeKalb’s argument out of
hand.126
V. The American Pipe Tolling Rule Does Not Extend to the
Statutes of Repose Applicable to Section 14(a)
Lastly, DeKalb asserts that so‐called “American Pipe tolling”—
that is, the tolling rule that the Supreme Court described in American
Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974)—applies here,
and renders its Section 14(a) claim timely. In so arguing, DeKalb
ignores our decision in Police & Fire Retirement System of City of
Detroit v. IndyMac MBS, Inc., 721 F.3d 95 (2d Cir. 2013).
In American Pipe, the Supreme Court held that “the
commencement of a class action suspends the applicable statute of
limitations as to all asserted members of the class who would have
been parties had the suit been permitted to continue as a class
126 See Fed. R. App. P. 28(a)(8) (stating that an appellant’s brief “must
contain . . . citations to the authorities . . . on which the appellant relies”); cf. Bldg.
Indus. Elec. Contractors Ass’n v. City of New York, 678 F.3d 184, 190 n.3 (2d Cir.
2012) (summarily “reject[ing] [an] argument . . . [that was] raised only in a single
paragraph of the brief and without citation to authority”); James D. Cox et al.,
Does the Plaintiff Matter? An Empirical Analysis of Lead Plaintiffs in Securities Class
Actions, 106 Colum. L. Rev. 1587, 1587 (2006) (“The lead plaintiff provision was
adopted to encourage a class member with a large financial stake to become the
class representative. Congress expected that such a plaintiff would actively
monitor the conduct of a securities fraud class action so as to reduce the litigation
agency costs that may arise when class counsel’s interests diverge from those of
the shareholder class.”).
40
action.”127 And in IndyMac, “our conclusion [was] straightforward:
American Pipe’s tolling rule, whether grounded in equitable
authority or on Rule 23 [of the Federal Rules of Procedure], does not
extend to the statute of repose in Section 13” of the 1933 Act, 15
U.S.C. § 77m.128
We reasoned that, if the rule is equitable in nature, its
extension to Section 13’s statute of repose is barred by Lampf, in
which the Supreme Court stated that equitable “‘tolling principles
do not apply to that period.’”129 But critically, when the Court
referred to “that period” in Lampf, it was referring to not only
Section 13’s three‐year statute of repose, but also the three‐year
statutes of repose then applicable to Sections 9(f) and 18(a)—the very
same statutes of repose that we found applicable to Section 14(a) in
the first part of this opinion.130 As such, this aspect of our holding in
IndyMac—that if the American Pipe tolling rule is equitable in nature,
Lampf precludes its extension to Section 13’s statute of repose—
applies equally to the statutes of repose applicable to Section 14(a).
In IndyMac, we also reasoned that, if the American Pipe tolling
rule is legal in nature, its extension to Section 13’s statute of repose is
barred by the Rules Enabling Act.131 Underlying this determination
414 U.S. at 554.
127
721 F.3d at 109.
128
Id. (quoting Lampf, 501 U.S. at 363).
129
See Lampf, 501 U.S. at 360–63.
130
IndyMac, 721 F.3d at 109 (citing 28 U.S.C. § 2072(b)).
131
41
was our observation that, because “the statute of repose in Section
13 creates a substantive right,” and because “the Rules Enabling Act
forbids interpreting Rule 23 to abridge, enlarge, or modify any
substantive right,” “[p]ermitting a plaintiff to file a complaint or
intervene after the repose period set forth in Section 13 . . . has run
would therefore necessarily enlarge or modify a substantive right
and violate the Rules Enabling Act.”132 But we also stated that all
statutes of repose create a substantive right.133 Thus, this aspect of
our holding in IndyMac—that if the American Pipe tolling rule is legal
in nature, the Rules Enabling Act precludes its extension to Section
13’s statute of repose—applies equally to the statutes of repose
applicable to Section 14(a) as well.
Therefore, regardless of whether American Pipe’s tolling rule is
equitable or legal in nature, it does not extend to the statutes of
repose applicable to Section 14(a).
CONCLUSION
We have considered all of DeKalb’s other arguments and find
them to be without merit. Accordingly, for the foregoing reasons, we
hold as follows:
Id. (internal quotation marks omitted) (emphasis in original).
132
See id. at 106 (“[S]tatutes of repose create a substantive right in those
133
protected to be free from liability after a legislatively‐determined period of time.”
(emphasis in original) (alterations and internal quotation marks omitted).
42
(1) Sections 9(f) and 18(a) provide “private right[s] of
action that involve[ ] a claim of fraud, deceit,
manipulation, or contrivance,” to which a five‐year
statute of repose now applies under § 1658(b), but
Section 14(a) does not provide such a private right of
action.
(2) The same three‐year statutes of repose that applied to
Sections 9(f) and 18(a) before the passage of SOX, which
we borrowed and applied to Section 14 in Ceres, still
apply to Section 14(a) today.
(3) The statutes of repose applicable to Section 14(a) begin
to run on the date of the defendant’s last culpable act or
omission.
(4) DeKalb’s lead‐plaintiff motion does not “relate back”
under Rule 17(a)(3) to Bricklayers’ filing of the original
class‐action complaint.
(5) The PSLRA does not toll the statutes of repose
applicable to Section 14(a).
(6) The American Pipe tolling rule does not extend to the
statutes of repose applicable to Section 14(a).
Accordingly, we AFFIRM the District Court’s March 14, 2014
judgment dismissing DeKalb’s Section 14(a) claim as time‐barred by
the applicable three‐year statutes of repose and its Section 20 claim
for failure to state a claim upon which relief can be granted.
43