Securities Law Alert
In This Edition:• Second Circuit: Under Omnicare, Issuers Need Not Disclose Every Piece of Information That Runs
Counter to Their Statements of Opinion, Provided Those Opinions “Fairly Align” with the Information in
Their Possession at the Time
• Second Circuit: Lehman ERISA Suit Dismissed Under Pleading Standards of Fifth Third• Second Circuit: (1) Three-Year Statute of Repose Applies to Claims Alleging Materially Misleading Proxy
Statements Under Section 14(a), and (2) the Repose Period Begins to Run on the Date of the Most Recent
Alleged Violation
March 2016

Simpson Thacher
is a “standout choice forfinancial institutions,with a well-establishedreputation for its handlingof high-value litigation.”– Chambers USA
2015

Second Circuit: Under
Omnicare, Issuers Need
Not Disclose Every Piece
of Information That Runs
Counter to Their Statementsof Opinion, Provided Those
Opinions “Fairly Align” with
the Information in Their
Possession at the TimeOn March 4, 2016, the Second Circuit applied
the Supreme Court’s decision in Omnicare
v. Laborers’ District Council Construction
Industry Pension Fund, 135 S. Ct. 1318
(2015)1 in affirming dismissal of a securities
fraud action alleging that Sanofi had issued
misleading opinions regarding the prospects
for its multiple sclerosis drug, Lemtrada.
Tongue v. Sanofi, 2016 WL 851797 (2d Cir.
2016) (Parker, J.) (Sanofi II). The Second
Circuit held that “Omnicare does not impose
liability merely because an issuer failed todisclose information that ran counter to
1. Please click here to read our prior discussion of the Omnicare
decision.

Simpson Thacher & Bartlett LLP

an opinion expressed in the registration
statement,” provided that the opinion “fairly
align[ed] with the information in the issuer’s
possession at the time.”

BackgroundIn 2011, Sanofi acquired Genzyme
Corporation, which was in the process ofdeveloping Lemtrada. The merger agreement
provided that each Genzyme shareholder
would receive not only a cash payment per
share, but also a contingent value right(“CVR”) per share that “entitled the holder
to cash payouts upon the achievement ofcertain ‘milestones’ connected to the successof Lemtrada.”
The offering materials for the merger
included numerous statements expressing
Sanofi’s expectation that the FDA would
approve Lemtrada before March 31, 2014,
the cutoff date for achievement of the first
CVR milestone (the “Approval Milestone”).
After the merger, “Sanofi continued to speak
optimistically about Lemtrada.”
Sanofi did not disclose the fact that “the FDA[had] expressed concern about the use of1

single-blind studies for Lemtrada.”2 However,the FDA had indicated that a single-blind
study for Lemtrada “may be adequate” forapproval purposes if the study’s “effect[was] large.”[d]efendants [had] misled investors as to thelikelihood of meeting the Approval Milestone,. . . thereby artificially inflating the value of
the CVRs.” Defendants moved to dismiss
both complaints.

On November 8, 2013, the FDA released
briefing materials for a pending FDA hearing
in which two reviewing physicians raised
concerns regarding Sanofi’s use of singleblind studies. These briefing materials “alsodetailed the FDA’s communications with
Genzyme and Sanofi regarding the use of
single-blind clinical trials.” Upon release of
these briefing materials, the value of the CVRs
fell by more than 62%. Several weeks later,
Sanofi announced that the FDA had formallyrejected its application for Lemtrada’s
approval. The value of the CVR’s “dropped
further on the news.”

In May 2014, the FDA accepted Sanofi’s
resubmission for FDA approval of Lemtrada.
The FDA approved Lemtrada for thetreatment of multiple sclerosis in November
2014 without any further clinical data.

In December 2013, purchasers of the CVRs
brought two putative class actions against
Sanofi, Genzyme Corporation, and several
Sanofi executives (collectively, “defendants”).
One putative class alleged claims under
Section 10(b) and Rule 10b-5, as well as
Section 20(a) claims, under the Exchange
Act against the individual defendants. The
other putative class asserted claims under
Sections 11 and 12(a)(2) of the Securities Act,in addition to claims under Sections 10(b), 18,
and 20(a) and state blue sky law claims. Bothsets of plaintiffs alleged that “by failing todisclose the feedback from the FDA
regarding the use of single-blind studies,
2. In a double-blind clinical study, neither the patient nor the
researcher knows which drug was administered. In a single-blind
study, on the other hand, either the patient or the researcher (butnot both) knows which drug is being used.

Southern District of New York
Finds Defendants’ Statements ofOpinion Not Misleading Under
the Standard Set Forth in Fait v.
Regions Financial Corporation
On January 28, 2015, the Southern District of
New York held that both sets of plaintiffs had
failed to allege that defendants’ statementsof opinion regarding Lemtrada’s prospects
were false or misleading under the standard
set forth in the Second Circuit’s decision in
Fait v. Regions Financial Corporation, 655
F.3d 105 (2d Cir. 2011).3 In re Sanofi Sec.
Litig., 87 F. Supp. 3d 510 (S.D.N.Y. 2015)(Engelmayer, J.) (Sanofi I). In Fait, theSecond Circuit held that “when a plaintiff
asserts a claim under [S]ection 11 or 12 based
upon a belief or opinion alleged to have beencommunicated by a defendant, liability lies
only to the extent that the statement wasboth objectively false and disbelieved by the
defendant at the time it was expressed.”
The Southern District of New York applied
the Fait standard both to plaintiffs’ Section
10(b) claims and plaintiffs’ claims brought
under Sections 11 and 12 of the Securities
Act. The court found that there were no wellpleaded allegations indicating that defendants“did not genuinely believe what they were
saying at the time they said it,” and further
determined that plaintiffs had failed to allege
that defendants’ opinions were objectively
false. Sanofi I, 87 F. Supp. 3d 510.
After the district court dismissed plaintiffs’
complaints, the Supreme Court issued its
decision in Omnicare clarifying the pleading
requirements for Section 11 claims based onstatements of opinion. Plaintiffs appealed the
district court’s ruling and urged the Second
Circuit to reconsider the court’s decision
based on Omnicare.
3. Please click here to read our prior discussion of the Second
Circuit’s decision in Fait.
2

Second Circuit Explains That
Omnicare “Altered the Standard”
Set Forth in Fait for Liability Basedon Statements of Opinion
At the outset of its analysis, the Second Circuit
stated that Omnicare “altered the standard”
established in Fait for liability based onstatements of opinion.4 Sanofi II, 2016 WL
851797. The Second Circuit explained that
“Omnicare affirmed that liability . . . may lie
if either ‘the speaker did not hold the belief
she professed’ or ‘the supporting fact[s]she supplied were untrue.’” Id. (quoting
Omnicare, 135 S. Ct. 1318). However, theSecond Circuit noted that the Omnicare
Court “went on to hold that opinions, though
sincerely held and otherwise true as a matterof fact, may nonetheless be actionable
if the speaker omits information whose
omission makes the statement misleading toa reasonable investor.” The Second Circuit
explained that this omitted information must
“conflict with what a reasonable investor
would take from the statement itself.”
Id. (quoting Omnicare, 135 S. Ct. 1318).
The Second Circuit observed that the
Omnicare Court “cautioned against
an overly expansive reading of thisstandard.” The Supreme Court stated thatreasonable investors expect that an issuer’s
statement of opinion “fairly aligns with
the information in the issuer’s possession
at the time.” Omnicare, 135 S. Ct. 1318.
But the Supreme Court also explained that“[r]easonable investors understand that
opinions sometimes rest on a weighing ofcompeting facts” and they do not “expectthat every fact known to an issuer supports
its opinion statement.” Significantly, theSupreme Court made it clear that a statementof opinion “is not necessarily misleadingwhen an issuer knows, but fails to disclose,
some fact cutting the other way.”
The Omnicare Court further stated that an
investor is expected to “read[ ] each statement. . . in light of all its surrounding text,
including hedges, disclaimers, and apparently
conflicting information.” The investor
also “takes into account the customs andpractices of the relevant industry.” The Court
explained that “an omission that renders
misleading a statement of opinion whenviewed in a vacuum may not do so once that
4. While the Omnicare decision specifically addressed Section
11 claims, the Second Circuit did not limit its discussion orapplication of Omnicare to plaintiffs’ Section 11 claims.

statement is considered, as is appropriate, ina broader frame.”

Second Circuit Holds Defendants’Opinions Regarding the Expected
Timing of FDA Approval Did Not
Conflict With What Plaintiffs
Would Have Understood From
Those Statements
The Second Circuit concluded that “evenunder the Supreme Court’s revised approach
to allegations of materially misleading
opinions,” plaintiffs had failed to state aclaim as to defendants’ opinions regarding
Lemtrada’s prospects. Sanofi II, 2016
WL 851797.
The Second Circuit first considered whether
defendants’ opinions “conflict[ed] with whata reasonable investor would [have] take[n]from” the statements themselves (quoting
Omnicare, 135 S. Ct. 1318). The court foundthat there was no “serious conflict between
the FDA’s interim, albeit repeated, concerns
about [the clinical testing] methodology and[d]efendants’ optimism about FDA approval.”
The court noted that the FDA had stated thatits concerns “could be overcome if the results
showed an ‘extremely large effect,’” which infact was shown.
Notably, the Second Circuit observed thatplaintiffs were “sophisticated investors”
who were “well accustomed to the ‘customs
and practices of the relevant industry.’” Thecourt explained that “[r]easonable investors
understand that dialogue with the FDA is an
integral part of the drug approval process,and no sophisticated investor familiar
with standard FDA practice would expectthat every view of the data taken by[d]efendants was shared by the FDA.”
The court determined that this ongoing
dialogue “did not prevent [d]efendants
from expressing optimism, even exceptional
optimism, about the likelihood of drug
approval.” The Second Circuit observed thatwhile a layperson might “have misinterpreted[d]efendants’ statements as evincing
assurance of success,” plaintiffs here could“claim no such ignorance,” particularly
given that “the FDA has long made public
its preference for double-blind trials.” Thecourt reasoned that “[e]specially wherea complex financial instrument whose
value is tied to FDA approval is involved,
investors may be expected to keep themselves3

apprised of the FDA’s public positions on
testing methodology.”

Second Circuit Holds Defendants’
Failure to Disclose the FDA’s
Concerns Did Not Render
Defendants’ Opinions Misleading
Under Omnicare
The Second Circuit further held that
defendants’ failure to disclose the FDA’sconcerns about Lemtrada’s clinical testing
methodology did not render their opinions
misleading. The court emphasized that
under Omnicare, a statement of opinion “isnot necessarily misleading when an issuer
knows, but fails to disclose, some fact cutting
the other way” (quoting Omnicare, 135 S.
Ct. 1318). Rather, Omnicare simply requiresthat defendants’ statements “fairly align[ed]with the information in [their] possession at atime” (quoting Omnicare, 135 S. Ct. 1318).
Here, plaintiffs might “have been interested
in knowing about the FDA feedback,” andmay even “have acted otherwise had thefeedback been disclosed.” But the Second
Circuit emphasized that “Omnicare does
not impose liability merely because anissuer failed to disclose information thatran counter to an opinion expressed in theregistration statement.” The court determinedthat defendants had no obligation to“disclose[ ] the FDA feedback merely because
it tended to cut against their projections.”
Plaintiffs argued that the “test” for opinion
liability in this case should be “whether[d]efendants [had] failed to disclose a risk
above and beyond the normal risks associatedwith drug approval.” The Second Circuit
determined that “[n]o plain reading of
Omnicare supports this interpretation.”
The court explained that plaintiffs’
proposed test “eschew[ed] the more taxing
question of whether an issuer’s statement[was] misleading, and instead . . . impose[d]a bright-line disclosure rule, regardless of thenature of the statements actually made by theissuer.”Second Circuit Determines That
Defendants’ Opinions Regarding
the Lemtrada Study Results Were
Not Misleading Under Omnicare
Plaintiffs also challenged as misleading
defendants’ opinions touting the effectivenessof Lemtrada. The Second Circuit analogized
defendants’ statements to the example offeredin Omnicare of an issuer expressing its
belief that its conduct is lawful. The Second
Circuit explained that “[s]uch a statement
does not imply that the issuer’s conduct is,
in fact, lawful, but only that the issuer has
conducted a meaningful inquiry and has areasonable basis upon which to make suchan assertion.” Here, the court determinedthat defendants’ statements concerning
Lemtrada’s effectiveness could not be
deemed “misleading merely because the FDA
disagreed with the conclusion—so long as[d]efendants [had] conducted a ‘meaningful’inquiry and in fact held that view.”
The Second Circuit remarked that plaintiffs’
claims regarding these statements were
“little more than a dispute about the properinterpretation of data,” which the court had
previously “rejected as a basis for liability” inKleinman v. Elan Corp., 706 F.3d 145 (2d Cir.
2013). The court explained that “[d]efendants’statements were not misleading simply
because the FDA disagreed with [d]efendants’interpretation of the data.”
The Second Circuit concluded that under
the standard set forth in Omnicare, “noreasonable investor would have been misledby [d]efendants’ optimistic statements
regarding the approval and launchof Lemtrada.”4Second Circuit: Lehman
ERISA Suit Dismissed
Under Pleading Standardsof Fifth Third
On March 18, 2016, the Second Circuit
affirmed the dismissal of an action brought
under the Employee Retirement Income
Security Act of 1974 (“ERISA”) by former
participants in an employee stock ownershipplan (“ESOP”) that invested exclusively inshares of Lehman Brothers Holdings (the“Plan”). Rinehart v. Lehman Bros. Holdings,
2016 WL 1077009 (2d Cir. Mar. 18, 2016) (percuriam) (Rinehart II).5 The Second Circuit
held that the pleading standard set forth in
Fifth Third Bancorp v. Dudenhoeffer, 134
S. Ct. 2459 (2014)6 applies to ERISA claims
based upon public information suggesting“excessive risk” as well as to claims based on“market value.” The Second Circuit further
held that a plaintiff alleging ERISA claims
based on a fiduciary’s failure to investigate
inside information must allege (1) facts
showing how that investigation would haveuncovered relevant nonpublic information,and (2) an alternative action that the fiduciary
could have taken that “a prudent fiduciaryin the same circumstances would not haveviewed as more likely to harm the fund thanto help it” (quoting Fifth Third, 134 S. Ct.
2459).

Background
After Lehman Brothers filed for bankruptcy
in September 2008, plaintiffs brought suitagainst the Plan’s fiduciaries (the “PlanCommittee Defendants”) alleging thatthey had “breached their duty of prudence
under [ERISA] . . . by continuing to permit
investment in Lehman stock in the face of
circumstances arguably foreshadowing its
demise.” Plaintiffs also asserted ERISA claims
against Lehman’s former directors, including
the company’s former chairman and CEO,Richard S. Fuld, for allegedly “failing to keep
the Plan Committee Defendants apprised ofmaterial, nonpublic information that could
have affected their evaluation of the prudence
of investing in Lehman stock.”

The Southern District of New York dismissed
plaintiffs’ first and second amended
complaints in their entirety. In re Lehman
Bros. Sec. & ERISA Litig., 683 F. Supp. 2d294 (S.D.N.Y. 2010); In re Lehman Bros.
In re Lehman Bros. Sec. & ERISA Litig.,2011 WL 4632885 (S.D.N.Y. Oct. 5, 2011).
Among other grounds, the court found thatplaintiffs had failed to allege facts sufficient
to overcome the presumption of prudence set
forth in Moench v. Robertson, 62 F.3d 553(3d Cir. 1995), adopted by the Second Circuit.
On July 15, 2013, the Second Circuit applied
the Moench presumption of prudence andaffirmed the dismissal of plaintiffs’ second
amended complaint. Rinehart v. Akers, 722
F.3d 137 (2d Cir. 2013) (Rinehart I).
Almost a year later, on June 25, 2014, theSupreme Court unanimously held that “thelaw does not create a special presumption”
of prudence for ESOP fiduciaries. Fifth
Third, 134 S. Ct. 2459. The Supreme Court
subsequently vacated the Second Circuit’s
decision in Rinehart I and remanded theaction for further consideration in lightof Fifth Third. The Second Circuit in turnremanded the action to the district court,
which permitted plaintiffs to amend theircomplaint to narrow their claims and shorten
the class period.
On July 10, 2015, the Southern District of
New York dismissed plaintiffs’ amended
complaint. In re Lehman Bros. Sec. & ERISA
Litig., 113 F. Supp. 3d 745 (S.D.N.Y. 2015)(Lehman) (Kaplan, J.).7 As the Second Circuit
explained, the district court “recogniz[ed]that Fifth Third abrogated the Moench
presumption of prudence formerly governing
ESOP-based ERISA claims in this Circuit,[but] nonetheless concluded that[p]laintiffs failed to allege sufficiently that thePlan Committee Defendants violated their
ERISA fiduciary duties.” The district court
also held that plaintiffs [had] failed to state
ERISA claims against Richard Fuld, the only
remaining director-defendant in the action.
Plaintiffs appealed.

5. Simpson Thacher represents the former members of theLehman Brothers Employee Benefit Plans Committee (the “PlanCommittee Defendants”) in this action.
6. Please click here to read our prior discussion of the court’s
decision in Fifth Third.

7. Please click here to read our prior discussion of the court’s
decision in Lehman.
5Second Circuit Holds Plaintiffs
Failed to Allege ERISA Claims
Against the Plan Committee
Defendants Based on Publicly
Available Information
The Second Circuit explained that in Fifth
Third, the Supreme Court “made clear that‘where a stock is publicly traded, allegations
that a fiduciary should have recognized frompublicly available information alone that themarket was over- or undervaluing the stock
are implausible as a general rule, at leastin the absence of special circumstances’”(quoting Fifth Third, 134 S. Ct. 2459).
Applying the standard set forth in Fifth
Third, the Second Circuit held that plaintiffs
had failed to allege that the Plan Committee
Defendants had breached their duty ofprudence by continuing to invest in Lehman
stock despite the existence of “publicly
available information [allegedly indicating]that investment in Lehman had become
increasingly risky throughout 2008.” The
Second Circuit concurred with the district
court’s determination that plaintiffs’ amended
allegations did “no more than add marginallyto the cacophony of mixed signals describedin” plaintiffs’ earlier complaint and did
not “nudge the allegations . . . across theplausibility threshold” (quoting Lehman, 113
F. Supp. 3d 745).
Fifth Third Applies to Claims Alleging“Excessive Risk”

The Second Circuit rejected plaintiffs’
contention that Fifth Third only applies
to claims based on publicly available
information concerning “market value” andnot claims concerning “excessive risk.” The
Second Circuit agreed with the district court’s
finding that plaintiffs’ purported distinction
was “illusory” (quoting Lehman, 113 F. Supp.
3d 745). The Second Circuit explained that“[a]lthough the language of Fifth Third refers
primarily to ‘over- or undervaluing’ stock,
the Fifth Third Court applied this rule to theplaintiffs’ risk-based claims in that case.” The
Second Circuit further reasoned that applying
Fifth Third’s holding “to all allegations ofimprudence based upon public information—
regardless of whether the allegations areframed in terms of market value or excessiverisk—is consistent with the efficient market
hypothesis that risk is accounted for in themarket price of a security.”

Plaintiffs Failed to Allege “Special
Circumstances” Within the Meaning of
Fifth Third

The Second Circuit regarded as meritlessplaintiffs’ contention that the SEC’s July
2008 orders prohibiting short-sales of certain
financial firms’ securities, including Lehman
stock, “describe[d] market conditions
constituting ‘special circumstances.’” Thecourt explained that the SEC’s orders spoke“only conditionally about potential market
effects resulting from so-called naked shortsales” and did not “purport to describe thenexisting market conditions.” The Second
Circuit also agreed with the district court’s
observation that the “the only plausible
inference supported by [the complaint] is thatthe market processed any risks identified in
the SEC’s orders as it would have processed
any other public information about Lehman.”
The Second Circuit also rejected plaintiffs’
argument that the SEC orders “created special
circumstances by excluding naked short salesof [Lehman] securities.” Although plaintiffs“parrot[ed] language from Fifth Third,” thecourt held plaintiffs’ “conclusory assertions”
did not give rise to a plausible inference of“special circumstances.”

Second Circuit Holds Plaintiffs Did
Not Adequately Allege a Breachof Fiduciary Duty Claim Based on
the Plan Committee Defendants’
Failure to Investigate NonpublicInformation
Turning from claims based upon public
information to claims based upon inside
information, the Second Circuit held thatplaintiffs had not adequately alleged an
ERISA breach of fiduciary duty claim against
the Plan Committee Defendants for failing to“investigate nonpublic information regarding
the risks” of investing in Lehman stock.
The Second Circuit determined that even after
Fifth Third, plaintiffs alleging “a breach of
the duty of prudence for failure to investigate. . . ‘must allege facts that, if proved, would
show that an adequate investigation would
have revealed to a reasonable fiduciary thatthe investment at issue was imprudent’”(quoting In re Citigroup ERISA Litig., 662
F.3d 128 (2d Cir. 2011)). The Second Circuit
agreed with the district court that plaintiffs
did not explain “how [their] hypothetical
6

investigation would have uncovered thealleged inside information” (quoting Lehman,
113 F. Supp. 3d 745).
The Second Circuit further reasoned thateven if the Plan Committee Defendants had
uncovered adverse nonpublic information,
plaintiffs had not alleged that “a prudent
fiduciary” could not have concluded thattaking an alternative action based on that
information, such as “divesting Lehman
stock, or simply holding it without purchasing
more,” would have done more harm thangood, as plaintiffs were required to show
pursuant to the standard set forth in Fifth
Third and reiterated by the Supreme Courtin Amgen v. Harris, 136 S. Ct 758 (2016)(per curiam).8
Applying this standard, the Second Circuit
found that a prudent fiduciary could indeed
have concluded that plaintiffs’ proposed
alternative actions would have done more
harm than good. The court therefore heldthat plaintiffs had failed to allege ERISA
claims based on the Plan Committee
Defendants’ alleged failure to investigate
nonpublic information.

Second Circuit Holds Lehman’s
Former CEO Had No Duty to Informthe Plan Committee Defendants of
Nonpublic Information
Finally, the Second Circuit held the district
court had correctly dismissed plaintiffs’
duty to monitor and duty to inform claims
as to Lehman’s former chairman andCEO, Richard Fuld, in his capacity as an
appointing fiduciary of the Plan. The Second
Circuit concurred with the district court’s
determination that “ERISA does not impose
8. Please click here to read our prior discussion of the Amgendecision.

a duty on appointing fiduciaries to keep
their appointees apprised of nonpublic
information” (quoting Lehman I, 113 F. Supp.
3d 745). The Second Circuit also noted that“plaintiffs [could not] maintain a claim forbreach of the duty to monitor . . . absent anunderlying breach of the duties imposed
under ERISA.”The Second Circuit therefore affirmed the
district court’s dismissal of plaintiffs’ claimsin their entirety.

Second Circuit: (1) Three-Year
Statute of Repose Applies to
Claims Alleging Materially
Misleading Proxy Statements
Under Section 14(a), and(2) the Repose Period Begins
to Run on the Date of the Most
Recent Alleged Violation
On March 17, 2016, the Second Circuit
held that the five-year statute of repose
established by the Sarbanes-Oxley Act of2002 (“SOX”) for certain fraud claims does
not apply to claims brought under Section
14(a) of the Exchange Act, which prohibitsmaterial misleading proxy statements.
DeKalb Cty. Pension Fund v. Transocean,2016 WL 1055363 (2d Cir. 2016) (Cabranes,J.) (Transocean). The court determined that
Section 14(a) claims still remain subject tothe three-year statute of repose that applied
before the passage of SOX. The Second
Circuit further held that the statute of repose
for Section 14(a) claims “begin[s] to run on
the date of the defendant’s last culpable act
or omission.”7

Background
Section 14(a) of the Exchange Act prohibitsmaterial misrepresentations and omissionsin proxy statements sent to shareholdersof registered securities. There is no express
private right of action under Section 14(a),nor is there a statute of repose that expressly
governs Section 14(a) claims.
In Ceres Partners v. GEL Associates, 918 F.2d
349 (2d Cir. 1990), the Second Circuit heldthat a three-year statute of repose applies
to Section 14(a) claims. The Ceres court
reasoned that “the implied private rights ofaction in Section 14 were ‘analogous’ to theexpress private rights of action in Sections
9(f) and 18(a)” of the Exchange Act 9 because
all three provisions were “‘designed to ensurethat security holders receive full disclosure.’”Transocean, 2016 WL 1055363 (quoting
Ceres, 918 F.2d 349). Given the “common
goals” of the three provisions, the court“borrowed the three-year statutes of repose
applicable to Sections 9(f) and 18(a) . . . andapplied them to Section 14.”
In 2002, SOX established a new five-year
statute of repose, codified at 28 U.S.C.
§ 1658(b), for certain securities fraud claims,
specifically to “private right[s] of actionthat involve[ ] a claim of fraud, deceit,
manipulation, or contrivance.”

Second Circuit Holds § 1658(b)’sFive-Year Statute of Repose Does
Not Apply to Section 14(a) Claims
Because Those Claims Do Not
Necessarily Involve Fraud
The case before the Second Circuit concernedclaims under Section 14(a), Rule 14a-9, andSection 20(a) alleging that an October 2,
2007 proxy statement issued in connection
with a proposed merger between Transocean
and GlobalSantaFe Corporation containedmaterial misrepresentations and omissions.
The eventual lead plaintiff did not appear
in the case until December 2010, more than
three years after the proxy statement wasissued. On March 14, 2014, the Southern
District of New York dismissed plaintiffs’
Section 14(a) claim as untimely; plaintiffs
appealed. Plaintiffs contended that
9. Section 9(f) provides a private right of action for certain typesof securities price manipulation. Section 18(a) provides a privateright of action to purchasers who relied on materially misleadingstatements or omissions in documents filed with the SEC under
the Exchange Act.

§ 1658(b)’s five-year statute of repose―rather
than the three-year statute of repose adopted
in Ceres―applies to claims brought under
Section 14(a).
On appeal, the Second Circuit began its
analysis by considering whether § 1658(b)’s
five-year statute of repose applies to claims
under Section 9(f) and Section 18(a) of the
Exchange Act. The court concluded that
Section 9(f) falls within the scope of § 1658(b)because it “contain[s] requirements ofboth manipulative motive and willfulness.”
The court determined that § 1658(b)also applies to Section 18(a) because“[a] plaintiff asserting a Section 18(a) claim is,in essence, asserting a fraud claim.”
In light of these findings, the Second
Circuit observed that “the landscape has
fundamentally changed since [it] decided
Ceres.” The court explained that if it “wereto take the same analytical approach that[it] took in Ceres . . . i.e., borrow the statutesof repose applicable to Sections 9(f) and18(a)—the statute of repose applicable to
Section 14(a) would be five years.” The Second
Circuit noted that “this would be an absurd
result” and “undeniably contrary to clearly
expressed congressional intent.” The court
explained that “Congress has specified that§ 1658(b) applies only to ‘private right[s] ofaction that involve[] a claim of fraud, deceit,
manipulation, or contrivance,’ which Section
14(a) does not.”The Second Circuit stated that it “assume[s]that Congress is aware of existing law when
it passes legislation.” The court presumed
that Congress knew that: (1) courts had
long permitted plaintiffs to bring private
actions under Section 14(a), and(2) Ceres and numerous other decisions hadborrowed the three-year statutes of repose
applicable to Sections 9(f) and 18(a) andapplied them to Section 14(a). The Second
Circuit reasoned that “Congress must have
known that, by extending only the statuteof repose applicable to ‘private right[s] ofaction that involve[] a claim of fraud, deceit,
manipulation, or contrivance,’ the statutesof repose applicable to Section 14(a) would
remain intact.”
The Second Circuit “therefore [held] thatthe same three-year statutes of repose that[it] applied to Section 14 in Ceres . . . still
apply to Section 14(a) today.”8

Second Circuit Holds the Statuteof Repose for Section 14(a) Claims
Begins to Run on the Date of theLast Alleged Violation
The Second Circuit next considered when
the statute of repose for Section 14(a) claims
begins to run, and held that it “begin[s] to run
on the date of the violation.”
As an initial matter, the court deemed it
immaterial that the text of the statute of
repose that applied to Section 18(a) claims
prior to the enactment of § 1658(b) indicatedthat the clock did not begin to run until “after
such cause of action accrued.”10 The court
explained that in Lampf, Pleva, Lipkind,
Prupis & Petigrow v. Gilbertson, 501 U.S.
350 (1991), the Supreme Court “recognizedthat the [Exchange 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” (quoting Lampf, 501 U.S. 350).

The Second Circuit further held that the“discovery rule” does not toll the three-year
statute of repose for Section 14(a) claims until
the date the alleged fraud was discovered or“could have been discovered in the exerciseof reasonable diligence.” The court deemed
the “discovery rule” inapplicable both because“Section 14(a) claims do not demand fraud”
and “also because the discovery rule does
not extend to statutes of repose.” The court
explained that applying the “discoveryrule” to statutes of repose would “defeat
their distinct purpose, which is to effect alegislative judgment that a defendant shouldbe free from liability after the legislatively
determined period of time.” The Second
Circuit underscored that “an injury need not[even] have occurred, much less have been
discovered, for a statute of repose to begin torun.”
The court concluded “that, like all statutes ofrepose, the statutes of repose applicable to
Section 14(a) begin to run on ‘the date of the[defendant’s] last culpable act or omission.”

10. The text of the statute of repose that previously applied to
Section 9(f) claims, however, provided that the clock begins to
run “after such violation.”

The Securities Law Alertis edited by Paul C. Gluckow
pgluckow@stblaw.com /+1-212-455-2653, Peter E. Kazanoffpkazanoff@stblaw.com /+1-212-4553525 and Jonathan K. Youngwood
jyoungwood@stblaw.com /+1-212-455-3539).

9

New York

Los Angeles

Mark G. Cunha+1-212-455-3475
mcunha@stblaw.com

Lynn K. Neuner+1-212-455-2696
lneuner@stblaw.com

Michael D. Kibler+1-310-407-7515
mkibler@stblaw.com

Paul C. Curnin+1-212-455-2519
pcurnin@stblaw.com

Thomas C. Rice
+1-212-455-3040
trice@stblaw.com

Chet A. Kronenberg+1-310-407-7557
ckronenberg@stblaw.com

Michael J. Garvey+1-212-455-7358
mgarvey@stblaw.com

Mark J. Stein+1-212-455-2310
mstein@stblaw.com

Palo Alto

Susannah S. Geltman+1-212-455-2762
sgeltman@stblaw.com

Alan C. Turner+1-212-455-2472
aturner@stblaw.com

Paul C. Gluckow+1-212-455-2653
pgluckow@stblaw.com

Mary Kay Vyskocil+1-212-455-3093
mvyskocil@stblaw.com

Nicholas S. Goldin+1-212-455-3685
ngoldin@stblaw.com

Craig S. Waldman+1-212-455-2881
cwaldman@stblaw.com

Peter E. Kazanoff+1-212-455-3525
pkazanoff@stblaw.com

George S. Wang
+1-212-455-2228
gwang@stblaw.com

Joshua A. Levine+1-212-455-7694
jlevine@stblaw.com

David J. Woll
+1-212-455-3136
dwoll@stblaw.com

Joseph M. McLaughlin+1-212-455-3242
jmclaughlin@stblaw.com

Jonathan K. Youngwood+1-212-455-3539
jyoungwood@stblaw.com

Alexis S. Coll-Very+1-650-251-5201
acoll-very@stblaw.com
James G. Kreissman+1-650-251-5080
jkreissman@stblaw.com

Washington, D.C.
Peter H. Bresnan+1-202-636-5569
pbresnan@stblaw.com
Jeffrey H. Knox
+1-202-636-5532
jeffrey.knox@stblaw.com
Cheryl J. Scarboro+1-202-636-5529
cscarboro@stblaw.com
Peter C. Thomas+1-202-636-5535
pthomas@stblaw.com

The contents of this publication are for informational purposes only. Neither this publication nor the
lawyers who authored it are rendering legal or other professional advice or opinions on specific facts
or matters, nor does the distribution of this publication to any person constitute the establishment of an
attorney-client relationship. Simpson Thacher & Bartlett LLP assumes no liability in connection withthe use of this publication. Please contact your relationship partner if we can be of assistance regardingthese important developments. The names and office locations of all of our partners, as well as ourrecent memoranda, can be obtained from our website, www.simpsonthacher.com.
10SimpsonThacherWorldwide

UNITED STATESEUROPE

SOUTH AMERICANew York
425 Lexington Avenue
New York, NY 10017+1-212-455-2000

LondonCityPoint
One Ropemaker Street
London EC2Y 9HUEngland+44-(0)20-7275-6500

São Paulo
Av. Presidente Juscelino
Kubitschek, 1455
São Paulo, SP 04543-011
Brazil+55-11-3546-1000

Houston
600 Travis Street, Suite 5400
Houston, TX 77002+1-713-821-5650
Los Angeles
1999 Avenue of the Stars
Los Angeles, CA 90067+1-310-407-7500
Palo Alto
2475 Hanover Street
Palo Alto, CA 94304+1-650-251-5000
Washington, D.C.
900 G Street, NW
Washington, D.C. 20001+1-202-636-5500

ASIA

Beijing
3901 China World Tower
1 Jian Guo Men Wai Avenue
Beijing 100004
China+86-10-5965-2999
Hong Kong
ICBC Tower
3 Garden Road, Central
Hong Kong+852-2514-7600
Seoul
25th Floor, West Tower
Mirae Asset Center 1
26 Eulji-ro 5-gil, Jung-gu
Seoul 100-210
Korea+82-2-6030-3800
Tokyo
Ark Hills Sengokuyama Mori Tower
9-10, Roppongi 1-Chome
Minato-Ku, Tokyo 106-0032
Japan+81-3-5562-6200
11