Commercial Litigation and Arbitration

Supreme Court Articulates Standards for Equitable Tolling of Federal Statutes of Limitation

Credit Suisse Secs. (USA) LLC v. Simmonds, 2012 WL 986812 (U.S. Mar. 26, 2012):

In 2007, respondent Vanessa Simmonds filed 55 nearly identical actions under §16(b) against financial institutions that had underwritten various initial public offerings (IPOs) in the late 1990’s and 2000, including these petitioners. In a representative complaint, she alleged that the underwriters and the issuers’ insiders employed various mechanisms to inflate the aftermarket price of the stock to a level above the IPO price, allowing them to profit from the aftermarket sale. App. 59. She further alleged that, as a group, the underwriters and the insiders owned in excess of 10% of the outstanding stock during the relevant time period, which subjected them to both disgorgement of profits under §16(b) and the reporting requirements of §16(a). Id., at 61. See 15 U. S. C. §78m(d)(3); 17 CFR §§240.13d–5(b)(1) and 240.16a–1(a)(1) (2011). The latter requires insiders to disclose any changes to their ownership interests on a document known as a Form 4, specified in the Securities and Exchange Commission regulations. 15 U. S. C. §78p(a)(2)(C); 17 CFR §240.16a–3(a). Simmonds alleged that the underwriters failed to comply with that requirement, thereby tolling §16(b)’s 2-year time period. App. 62.

***[T]he United States Court of Appeals for the Ninth Circuit *** [— c]iting its decision in Whittaker v. Whittaker Corp., 639 F. 2d 516 (1981) *** [—] held that §16(b)’s limitations period is “tolled until the insider discloses his transactions in a Section 16(a) filing, regardless of whether the plaintiff knew or should have known of the conduct at issue.” 638 F. 3d, at 1095.***

Petitioners maintain that these suits were properly dismissed because they were filed more than two years af-ter the alleged profits were realized. Pointing to dictum in Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U. S. 350 (1991), petitioners argue that §16(b)’s limitations period is a period of repose, which is not to be “extended to account for a plaintiff’s discovery of the facts underlying a claim.” Brief for Petitioners 17. See Lampf, supra, at 360, n. 5 (“Section 16(b) . . . sets a 2-year . . . period of repose”). We do not reach that contention, because we conclude that, even assuming that the 2-year period can be extended, the Ninth Circuit erred in determining that it is tolled until the filing of a §16(a) statement.

*** Section 16 itself quite clearly does not extend the period in that manner. The 2-year clock starts from “the date such profit was realized.” §78p(b). Congress could have very easily provided that “no such suit shall be brought more than two years after the filing of a statement under subsection (a)(2)(C).” But it did not. The text of §16 simply does not support the Whittaker rule. ***

Even accepting that equitable tolling for fraudulent concealment is triggered by the failure to file a §16(a) statement, the Whittaker rule is completely divorced from long-settled equitable-tolling principles. “Generally, a litigant seeking equitable tolling bears the burden of establishing two elements: (1) that he has been pursuing his rights diligently, and (2) that some extraordinary circumstances stood in his way.” Pace v. DiGuglielmo, 544 U. S. 408, 418 (2005) (emphasis added). It is well established, moreover, that when a limitations period is tolled because of fraudulent concealment of facts, the tolling ceases when those facts are, or should have been, discovered by the plaintiff. 2 C. Corman, Limitation of Actions §9.7.1, pp. 55–57 (1991). Thus, we have explained that the statute does not begin to run until discovery of the fraud “ ‘where the party injured by the fraud remains in ignorance of it without any fault or want of diligence or care on his part.’” Lampf, supra, at 363 (quoting Bailey v. Glover, 21 Wall. 342, 348 (1875); emphasis added). Allowing tolling to continue beyond the point at which a §16(b) plaintiff is aware, or should have been aware, of the facts underlying the claim would quite certainly be inequitable and inconsistent with the general purpose of statutes of limitations: “to protect defendants against stale or unduly delayed claims.” John R. Sand & Gravel Co. v. United States, 552 U. S. 130, 133 (2008).

The inequity of the Whittaker rule is especially apparent in a case such as this, where the theory of §16(b) liability of underwriters is so novel that petitioners can plausibly claim that they were not aware they were required to file a §16(a) statement. And where they disclaim the necessity of filing, the Whittaker rule compels them either to file or to face the prospect of §16(b) litigation in perpetuity. *** The potential for such endless tolling in cases in which a reasonably diligent plaintiff would know of the facts underlying the action is out of step with the purpose of limitations periods in general. And it is especially at odds with a provision that imposes strict liability on putative insiders, see Gollust, 501 U. S., at 122. Had Congress intended this result, it most certainly would have said so.

*** Simmonds—like the Ninth Circuit in Whittaker—disregards the most glaring indication that Congress did not intend that the limitations period be categorically tolled until the statement is filed: The limitations provision does not say so. This fact alone is reason enough to reject a departure from settled equitable-tolling principles. Moreover, §16’s purpose is fully served by the rules outlined above, under which the limitations period would not expire until two years after a reasonably diligent plaintiff would have learned the facts underlying a §16(b) action. The usual equitable-tolling inquiry will thus take account of the unavailability of sources of information other than the §16(a) filing. Cf., e.g., Ruth v. Unifund CCR Partners, 604 F. 3d 908, 911–913 (CA6 2010); Santos ex rel. Beato v. United States, 559 F. 3d 189, 202–203 (CA3 2009). The oddity of Simmonds’ position is well demonstrated by the circumstances of this case. Under the Whittaker rule, because petitioners have yet to file §16(a) statements (as noted earlier they do not think themselves subject to that requirement), Simmonds still has two years to bring suit, even though she is so well aware of her alleged cause of action that she has already sued. If §16(a) statements were, as Simmonds suggests, indispensable to a party’s ability to sue, Simmonds would not be here.

[A]ssuming some form of tolling does apply, it is preferable to apply that form which Congress was certainly aware of, as opposed to the rule the Ninth Circuit has fashioned. See Meyer v. Holley, 537 U. S. 280, 286 (2003) (“Congress’ silence, while permitting an inference that Congress intended to apply ordinary background tort principles, cannot show that it intended to apply an unusual modification of those rules”).***

We are divided 4 to 4 concerning, and thus affirm without precedential effect, the Court of Appeals’ rejection of petitioners’ contention that §16(b) establishes a period of repose that is not subject to tolling.

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