Source: https://www.law.cornell.edu/supremecourt/text/10-1261
Timestamp: 2015-03-30 01:22:48
Document Index: 763855576

Matched Legal Cases: ['§16', '§16', '§16', '§78', '§16', '§16', '§16', '§16', '§78', '§16', '§78', '§16', '§16', '§16', '§78', '§240', '§78', '§240', '§16', '§16', 'art. 638', '§16', '§16', '§16', '§78', '§16', '§16', '§16', '§9', '§16', '§16', '§16', '§16', '§16', '§16', '§16', '§16', '§16', '§78']

CREDIT SUISSE SECURITIES (USA) LLC v. SIMMONDS | LII / Legal Information Institute
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v. SIMMONDS
Under §16(b) of the Securities Exchange Act of 1934, a corporation or security holder of that corporation may sue corporate insiders who realize profits from the purchase and sale, or sale and purchase, of the corporation’s securities within any 6-month period. The Act provides that such suits must be brought within “two years after the date such profit was realized.”
Held: Even assuming that the 2-year period can be extended (a question on which the Court is equally divided), the Ninth Circuit erred in determining that it is tolled until a §16(a) statement is filed. The text of §16(b)—which starts the clock from “the date such profit was realized,” §78p(b)—simply does not support the Whittaker rule. The rule is also not supported by the background rule of equitable tolling for fraudulent concealment. Under long-settled equitable-tolling principles, a litigant must establish “(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. Tolling therefore ceases when fraudulently concealed facts are, or should have been, discovered by the plaintiff. Allowing tolling to continue beyond that point would 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. The Whittaker rule’s inequity is especially apparent here, where the theory of §16(b) liability is so novel that petitioners can plausibly claim that they were not aware they had to file a §16(a) statement. Under the Whittaker rule, alleged insiders who disclaim the necessity of filing are compelled either to file or to face the prospect of §16(b) litigation in perpetuity. Had Congress intended the possibility of such endless tolling, it would have said so. Simmonds’ arguments to the contrary are unpersuasive. The lower courts should consider in the first instance how usual equitable tolling rules apply in this case. Pp. 4–8. 638 F. 3d 1072, vacated and remanded.
CREDIT SUISSE SECURITIES (USA) LLC, et al.,PETITIONERS v. VANESSA SIMMONDS
We consider whether the 2-year period to file suit against a corporate insider under §16(b) of the Securities Exchange Act of 1934,
15 U. S. C. §78p(b), begins to run only upon the insider’s filing of the disclosure statement required by §16(a) of the Act, §78p(a).
Under §16(b) of the Exchange Act,
of the corporation who realize any profits from the purchase and sale, or sale and purchase, of the corporation’s securities within any 6-month period. “The statute imposes a form of strict liability” and requires insiders to disgorge these “short-swing” profits “even if they did not trade on inside information or in-tend to profit on the basis of such information.” Gollust v. Mendell,
501 U. S. 115,
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 duringthe relevant time period, which subjected them to bothdisgorgement 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.
In re: Section 16(b) Litigation, 602 F. Supp. 2d 1202 (2009). As relevant here, the court granted petitioners’ motion to dismiss 24 complaints on the ground that §16(b)’s 2-year time period had expired long before Simmonds filed the suits. The United States Court of Appeals for the Ninth Circuit reversed in relevant part. 638 F. 3d 1072 (2011). Citing its decision in Whittaker v. Whittaker Corp., 639 F. 2d 516 (1981), the court held that §16(b)’s limitations period is “tolled until the insider discloseshis 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. Judge Milan Smith, Jr., the author of the panel opinion, also specially concurred, expressing his disagreement with the Whittaker rule, but noting that the court was compelled to follow Circuit precedent. Id., at 1099–1101. We granted certiorari, 564 U. S. ___ (2011).
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 dictumin Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson,
In adopting its rule in Whittaker, the Ninth Circuit ex-pressed its concern that “[i]t would be a simple matterfor the unscrupulous to avoid the salutary effect of Section 16(b) . . . simply by failing to file . . . reports in violation of subdivision (a) and thereby concealing from prospective plaintiffs the information they would need” to bring a §16(b) action. 639 F. 2d, at 528 (internal quotation marks omitted). Assuming that is correct, it does not follow that the limitations period is tolled until the §16(a) statement is filed. 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.
operatesto toll the limitations period until the §16(a) statement is filed. See 639 F. 2d, at 527, and n. 9. 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,
(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,
Simmonds maintains that failing to apply the Whittaker rule would obstruct Congress’s objective of curbing short-swing speculation by corporate insiders. This objective, according to Simmonds, is served by §16(a) statements, which “provide the information necessary to trigger §16(b) enforcement.” Brief for Respondent 24. 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 bythe 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.
Simmonds also asserts that application of established equitable-tolling doctrine in this context would be in-consistent with Congress’s intention to establish in §16a clear rule that is capable of “mechanical application.” Brief for Respondent 57 (internal quotation marks omitted). Equitable tolling, after all, involves fact-intensive disputes “about what the notice was, where it was disseminated, who received it, when it was received, and whether it provides sufficient notice of relevant Section 16(a) facts.” Id, at 56–57. Of course this argument counsels just as much in favor of the “statute of repose” rule that petitioners urge (that is, no tolling whatever) as it does in favor of the Whittaker rule. No tolling is certainly an easily administrable bright-line rule. And assuming 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,
1 Section 16(b) regulates beneficial owners of more than 10% of any class of equity securities.
15 U. S. C. §78p(a)(1).
2 Section 16(b) provides in full:
“For the purpose of preventing the unfair use of information which may have been obtained by such beneficial owner, director, or officer by reason of his relationship to the issuer, any profit realized by him from any purchase and sale, or any sale and purchase, of any equity security of such issuer (other than an exempted security) or a security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act) involving any such equity security within any period of less than six months, unless such security or security-based swap agreement was acquired in good faith in connection with a debt previously contracted, shall inure to and be recoverable by the issuer, irrespective of any in-tention on the part of such beneficial owner, director, or officer in en-tering into such transaction of holding the security or security-based swap agreement purchased or of not repurchasing the security or security-based swap agreement sold for a period exceeding six months. Suit to recover such profit may be instituted at law or in equity in any court of competent jurisdiction by the issuer, or by the owner of any security of the issuer in the name and in behalf of the issuer if the issuer shall fail or refuse to bring such suit within sixty days after request or shall fail diligently to prosecute the same thereafter; but no such suit shall be brought more than two years after the date such profit was realized. This subsection shall not be construed to cover any transaction where such beneficial owner was not such both at the time of the purchase and sale, or the sale and purchase, of the security or security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act) involved, or any transaction or transactions which the [Securities and Exchange] Commission by rules and regu-lations may exempt as not comprehended within the purpose of this subsection.”
6 Relying on our decision in American Pipe & Constr. Co. v. Utah,414 U. S. 538 (1974)