WASHINGTON, D.C. -(Mealey's) The U.S. Supreme Court heard
oral arguments Nov. 29 in a shareholder derivative suit appeal seeking a
determination of whether the two-year statute of limitations for bringing an
action under Section 16(b) of the Securities Exchange Act of 1934 is subject to
tolling (Credit Suisse Securities [USA] LLC, et al. v. Vanessa Simmonds,
No. 10-1261, U.S. Sup.; See November 2011, Page 26) (lexis.com subscribers
may access Supreme Court briefs for this case).
(Oral argument transcript available to Mealey's
subscribers. Document #57-111206-021T.)
Arguing for the petitioners - investment banks that were
part of 54 shareholder derivative actions filed by investor Vanessa Simmonds in
the U.S. District Court for the Western District of Washington, attorney
Christopher Landau of the law firm of Kirkland & Ellis told the justices
that under Section 16(b) of the Securities Exchange Act of 1934, there is a two-year
statute of repose that cannot be extended at all and that even if it could be
extended, "the doctrine of equitable tolling wouldn't apply to extend the time
limit here, where the plaintiff didn't act diligently to bring a claim and
didn't prove that any extraordinary circumstances precluded her from filing."
But the justices questioned why Congress was not more
specific in spelling out a two-year statute of repose for Section 16(b) when it
had done so for a number of other statutes under the Exchange Act.
Due Diligence
Justice Sonia Sotomayor also questioned Landau's argument
regarding shareholder due diligence, asking him if any documents - other than a
Section 16(a) form - would be available to a shareholder in order for the
shareholder to discover whether an insider has traded within six months.
Assistant to the Solicitor General Jeffrey B. Wall argued
on behalf of the United States as amicus curiae and told the justices
that the investments banks' "have two basic arguments, both of which are incorrect."
He argued that, pursuant to Supreme Court precedent, the
justices have previously ruled that in cases where a statute ran from the time
of the complained-of event, the statute should be treated as a statute of
limitations and thus, subject to equitable tolling.
Statute Of Limitations
Arguing for Simmonds, Jeffrey Tilden of Gordon Tilden
Thomas & Cordell asserted that the investment banks' argument "and the
government's for that matter are founded on the notion that Congress wanted
someone who violated 16a to receive then benefit of the statute of limitations
or repose in 16b."
"16b is 99% of the time irrelevant without a 16a
filing. As a matter of logic, it makes no sense to provide the one who
violates 16b an escape [from] liability because they also violate 16a," Tilden
said.
In her complaints filed in the District Court, Simmonds
alleged on behalf of 54 companies (collectively, the issuer defendants) that
the investment banks that acted as underwriters for initial public offerings
(IPOs) of the companies' common stock violated Section 16(b) by engaging in an
insider trading scheme during the 1990s and early 2000s where the underwriter
defendants made "lock-up" agreements with a number of other insiders and
certain investors to profit from underpriced IPOs.
Time-Barred
Thirty of the issuer defendants moved to dismiss under
Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), arguing that Simmonds'
claims were time-barred and that Simmonds lacked standing to bring the claims
because she failed to properly submit adequate demand letters to the issuing
companies before filing the suits. The underwriters also moved to
dismiss, arguing that Simmonds' claims were time-barred, that they failed to
state a cause of action under Section 16(b) and that they are protected under
certain provisions of Section 16(b).
The District Court granted the moving issuer defendants'
motion, ruling that the demand letters were inadequate, and granted the
underwriters' motion, holding that the claims were barred under the two-year
statute of limitations. The District Court also dismissed the remaining
24 actions with prejudice in light of its statute of limitations ruling.
Simmonds appealed the rulings to the Ninth Circuit, and
the 30 moving issuer defendants cross-appealed, averring that the District
Court should have dismissed their action with prejudice rather than without
prejudice.
Writ Of Certiorari
The Ninth Circuit affirmed in part and reversed in part,
and denied rehearing and rehearing en banc, and
Simmonds and 10 underwriters filed separate petitions for writ of certiorari
with the U.S. Supreme Court. The Supreme Court denied Simmonds'
petition.
On Oct. 28, the Supreme Court granted a motion for leave
to participate in oral argument as amicus curiae and for divided
argument filed by U.S. Solicitor General Donald B. Verrilli Jr.
The underwriters' petition presents this question:
"Whether the two-year time limit for bringing an action under Section 16(b) of
the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b), is subject to tolling,
and, if so, whether tolling continues even after the receipt of actual notice
of the facts giving rise to the claim."
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