Credit Suisse Securities LLC v. Simmonds
Vanessa Simmonds alleged in 54 separate complaints that several investment banks shared in the profits of customers who received IPO allocations and sold their shares on the open market at higher prices. The lawsuits also claim the banks strategically allocated IPO shares to customers who would return the favor by giving the banks more business. Simmonds holds stock in the companies that issued shares through the disputed IPOs. She sent those companies letters demanding that they sue the underwriting banks for disgorgement of ill-gotten profits. When the companies declined, she invoked a provision of the Securities Exchange Act that allowed her to sue the banks herself. The banks argued that the lawsuits should be dismissed because they were filed after a two-year time statute of limitations for bringing an action under Section 16(b) of the 1934 Securities Exchange Act. The U.S. Court of Appeals for the Ninth Circuit said the suits were not too late because the time limit had been postponed. The court did dismiss 30 of Simmonds' lawsuits on other legal grounds.
Is the two-year time limit for bringing an action under Section 16(b) of the 1934 Securities Exchange Act subject to tolling, and if so, does tolling continue even after the receipt of actual notice of the facts giving rise to the claim?
Yes and no. In a unanimous decision, Justice Antonin Scalia held that while the limitations period for Section 16(b) is subject to tolling, it is not automatically tolled until the filing of a Section 16(a) statement. Justice Scalia looked to the language of the statute, which specified that the two-year clock started from “the date such profit was realized,” without reference to the filing statement. He rejected the Ninth Circuit’s concern that persons could avoid the effects of Section 16(b) by failing to file statements and thus depriving prospective plaintiffs of needed information. He also rejected the Ninth Circuit’s argument that the background rule of equitable tolling for fraudulent concealment operated to toll the limitations period until a defendant files a 16(a) statement, noting that a plaintiff typically must show that he has been pursuing his rights diligently and that some extraordinary circumstances stood in his way. He noted that in cases of fraudulent concealment of facts, tolling ceases when a plaintiff discovers or should discover those facts.
The Court divided 4-4 on the question of how the usual rules of equitable tolling apply to the facts of the case, thus affirming without precedential effect the Ninth Circuit’s ruling that 16(b) establishes a period of repose subject to tolling. Chief Justice John Roberts did not participate in the consideration or decision of the case.