Opinion ID: 3026425
Heading Depth: 2
Heading Rank: 1

Heading: Application of Sarbanes-Oxley in this Case

Text: periods apply to any of the claims raised in plaintiffs’ complaint? To repeat, in Lieberman we held that the lengthier limitations periods provided by Sarbanes-Oxley did not apply to claims that had expired under the limitation periods in place prior to the passage of that legislation, even if the claims were filed after its enactment and would be timely under its 16 provisions. 432 F.3d at 488–92. We explicitly reserved the question, however, whether that Act lengthened the limitations periods for claims on which the periods were already running but had not yet expired. Id. at 488. Though there is a “presumption against retroactive legislation [that] is deeply rooted in our jurisprudence,” Landgraf v. USI Film Prods., 511 U.S. 244, 265 (1994), it is also the case that if Congress has expressly provided for retroactive effect, a court must “enforce[] the statute as written,” Lieberman, 432 F.3d at 488. As noted above, in § 804(b) of Sarbanes-Oxley Congress explicitly stated that “[t]he limitations period[s] provided by section 1658(b) of title 28, United States Code, as added by this section, shall apply to all proceedings addressed by this section that are commenced on or after the date of enactment of this Act.” 116 Stat. 801. Congress used the terms “proceedings . . . that are commenced” instead of “claims that accrue” or similar such language. The plain meaning of these words directs that claims filed after July 30, 2002, receive the benefit of the extended limitations periods, even if the shorter periods had already begun (but had not expired) on the underlying causes of action. Hence, the types of claims listed in 28 U.S.C. § 1658(b) and raised in suits with timing like this one—filed in 2004 but complaining of events in 1999—get the benefit of Sarbanes-Oxley’s two-year statute of limitations and five-year statute of repose. The lingering question, though, is whether each of plaintiffs’ claims here is in fact within the scope of 28 U.S.C. § 1658(b). 17
the extended limitations periods provided by Sarbanes-Oxley? There can be no question that 28 U.S.C. § 1658(b) covers claims based on § 10(b) of the Securities Exchange Act. The statute refers explicitly to “private right[s] of action that involve[] a claim of fraud . . . in contravention of . . . the securities laws.” 28 U.S.C. § 1658(b). Indeed, the implied cause of action recognized under § 10(b) is widely known and referred to as “securities fraud.” See, e.g., Insider Trading and Securities Fraud Enforcement Act of 1988, Pub. L. 100-704, 102 Stat. 4681; Lampf, 501 U.S. at 376. To conclude that § 1658(b) does not apply to § 10(b) claims would be absurd. But does § 1658(b) also apply to plaintiffs’ § 14(a) claim? Section 1658(b), by its terms, applies to claims that “involve[] . . . fraud, deceit, manipulation, or contrivance.” This wording closely tracks the language of § 10(b), which prohibits employing “any manipulative or deceptive device or contrivance.” Violations of § 14(a), on the other hand, may be committed without scienter; in other words, no culpable intent is required. See Cal. Pub. Employees’ Ret. Sys. v. The Chubb Corp., 394 F.3d 126, 143–44 (3d Cir. 2004) (“In contrast to section 10(b) . . . , scienter is not a necessary element in alleging a section 14(a) claim.”). For liability to attach under § 14(a), all that is required is that a proxy statement be “false or misleading with respect to any material fact.” 17 C.F.R. § 240.14a-9(a). 18 Given this material distinction, we conclude that Congress did not intend to include § 14(a) claims within the scope of § 1658(b), but rather intended that provision to apply to § 10(b) claims and other claims requiring proof of fraudulent intent.8 Several district courts have done the same analysis and reached the same conclusion when deciding § 1658(b)’s relevance to § 14(a) and other securities-related claims. See Virginia M. Damon Trust v. N. Country Fin. Corp., 325 F. Supp. 2d 817, 822–24 (W.D. Mich. 2004) (holding that § 1658(b) does not apply to claims brought under § 14 of the Securities Exchange Act); In re Global Crossing, Ltd. Sec. Litig., 313 F. Supp. 2d 189, 196–98 (S.D.N.Y. 2003) (same);9 cf. In re Alstom SA Sec. Litig., 406 F. Supp. 2d 402, 412–18 (S.D.N.Y. 2005) 8 A plain reading of Rule 10b-5 would suggest that § 10(b) claims likewise do not always require proof of scienter. See 17 C.F.R. § 240.10b-5(b) (making it unlawful simply to “make any untrue statement of a material fact”). The Supreme Court, however, has ruled that despite Rule 10b-5’s apparent breadth, it cannot reach conduct beyond that covered by the text of 15 U.S.C. § 78j(b), which clearly requires fraudulent intent. Ernst & Ernst v. Hochfelder, 425 U.S. 185, 212–14 (1976). 9 The Global Crossing Court was the first to analyze this question in any detail. In addition to the textual and logical reasons for its conclusion, that Court noted that the limited legislative history also lent some support. See In re Global Crossing, 313 F. Supp. 2d at 197 n.6; see also In re Alstom SA Sec. Litig., 406 F. Supp. 2d 402, 415 (S.D.N.Y. 2005). 19 (holding the same for §§ 11, 12(a)(a), and 15 of the Securities Act of 1933); In re Firstenergy Corp. Sec. Litig., 316 F. Supp. 2d 581, 601 (N.D. Ohio 2004) (§§ 11 and 12(a)(2) of the Securities Act of 1933); Amy Grynol Gibbs, Note, It’s About Time: The Scope of Section 804 of the Sarbanes-Oxley Act of 2002, 38 G A. L. R EV. 1403 (concluding that § 1658(b) does not apply to claims under § 11 of the Securities Act of 1933). Plaintiffs, as a fall-back position, next argue that even if § 14(a) claims are not necessarily based in fraud (and thus would not generally get the benefit of § 1658(b)’s extended statute of limitations), their particular § 14(a) claim does sound in fraud and therefore does fall within the scope of § 1658(b). Lending some support to this notion—that we should look at claims in a practical manner, not a “categorical” one—is that, under our precedent, if a claim not otherwise requiring proof of scienter nonetheless sounds in fraud, then Federal Rule of Civil Procedure 9(b)’s heightened pleading standard applies.10 See Shapiro v. UJB Fin. Corp., 964 F.2d 272, 287–89 (3d Cir. 1992); see also Rombach v. Chang, 355 F.3d 164, 170–71 (2d Cir. 2004). Plaintiffs therefore ask whether it is fair that the same thinking that is used to impose Rule 9(b) burdens on their § 14(a) claim (sounding in fraud) be used to deny them the benefits of § 1658(b), which applies to fraud claims. 10 The Rule, in relevant part, provides that “[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.” 20 Plaintiffs’ focus on perceived fairness is misplaced. Rather, as we did when deciding Shapiro, we focus on the policy choice of Congress as shown by the text and purpose of the applicable law. First, the text of Rule 9(b) supported our conclusion in Shapiro because, by its terms, the rule applied to “averments” (i.e., allegations to be backed up with evidence). Section 1658(b), however, refers to “right[s] of action.” This distinction is significant because “averments,” when assembled, are what constitute “right[s] of action,” and a statute using the latter term—like § 1658(b)—necessarily applies at a higher level of generality than a statute using the former term—like Rule 9(b). This point was not lost on us in Shapiro. See 964 F.2d at 288 (“Rule 9(b) refers to ‘averments’ of fraud, and thus requires us to examine the actual allegations that support a particular legal claim.”). Second, pleading with specificity, as required by Rule 9(b), is intended to give defendants more certainty as to the charges they must defend. Rombach, 355 F.3d at 171. As with that policy choice made for the benefit of defendants, so too does the policy choice of Congress to establish firm deadlines for securities fraud claims help defendants. Allowing plaintiffs effectively to bypass this policy judgment—and thereby select the length of the limitations periods that will apply to a claim merely by sounding their § 14(a) claim in fraud—would not promote the principal reason for having time-bars: certainty for defendants. We therefore see no reason to transpose our ruling in Shapiro to this case. In ruling that § 14(a) claims do not fall within the scope 21 of § 1658(b), we recognize that this severs the tie between the limitations periods applicable to § 10(b) claims and § 14(a) claims that we recognized in Westinghouse. See 993 F.2d at 352–54 (holding that the same statute of limitations periods that applied to claims under § 10(b) also apply to those under § 14(a)). Plaintiffs make much of this link in their filings before us. But the law has materially changed since our decision in Westinghouse, and to use its policy arguments to claim otherwise ignores what has happened since. As explained above, in the absence of express limitations periods for the § 14(a) implied right of action, Westinghouse naturally relied on § 10(b)’s similar objectives—“fair corporate suffrage” and “protect[ing] investors”—when deciding it could use as well the same method (set out in Data Access, approved in Lampf) when determining the time-bar for § 14(a) claims. Id. at 353. Westinghouse did not say that the limitations periods for § 14(a) claims are, by their nature, the same as those for § 10(b) claims. Rather, that case held that in the absence of any explicit congressional command, there was good reason to think that Congress would want § 14(a) claims—just as much as § 10(b) claims—to be the same as every other securities claim. Thus, the link established by Westinghouse for § 14(a) claims was not to § 10(b), but instead (as with § 10(b) itself) to other causes of action in the securities laws. When it comes to § 10(b) claims, though, there is now a new consideration—namely, express limitations periods set by 22 a law that did not previously exist. That Congress has now provided explicit, extended limitation periods for fraud-based claims, such as those brought under § 10(b), is not cause to alter the way we determine the applicable limitation periods for § 14(a) claims, which need not be fraud-based and, thus, still do not have express limitation periods. Though Data Access and Lampf have now been superseded by Sarbanes-Oxley as they relate to the time limitations on § 10(b) claims, nothing in that legislation indicates Congress’s desire to supersede the rationale of those cases as applied in Westinghouse with respect to § 14(a) claims. We hold that 28 U.S.C. § 1658(b) applies to claims under 15 U.S.C. § 78j(b) (i.e., § 10(b) claims), but not to claims under 15 U.S.C. § 78n(a) (i.e., § 14(a) claims). Because plaintiffs filed their complaint over four years after the merger between Exxon and Mobil,11 the previously applicable three-year statute of repose still applies and serves as a bar to their § 14(a) claim. Only plaintiffs’ § 10(b) claim, therefore, has the potential to be viable given the facts here, and we thus continue with that claim alone down the timing gauntlet. 11 Whether the merger date, in fact, marks the proper date on which to start running the statute of repose is the focus of the next section. That date, however, is the latest any party claims that the statute of repose began to run. 23