March 26, 2012

Supreme Court Decides Credit Suisse Securities (USA) LLC v. Simmonds

On March 26, 2012, the U.S. Supreme Court decided Credit Suisse Securities (USA) LLC v. Simmonds, No. 10-1261, reversing the Ninth Circuit and holding that the two-year limitations period under § 16(b) of the Securities Exchange Act of 1934 (the Act) is not tolled until the filing of a disclosure statement under § 16(a) of the Act.

In 2007, Vanessa Simmonds filed 55 nearly identical actions under § 16(b) of the Act against financial institutions that had underwritten initial public offerings (IPOs) in the late 1990s and 2000, including Credit Suisse Securities (USA) LLC. Section 16(b) creates a cause of action for holders of securities against corporate officers, directors, or other owners who realize profits from the purchase and sale, or sale and purchase, of the corporation's securities within any six-month period.  The statute imposes a form of strict liability and requires insiders to disgorge "short-swing" profits even if they were not trading on inside information. Section 16(b) provides that such suits must be brought within "two years after the date such profit was realized."

The District Court for the Western District of Washington dismissed Simmonds's suits on the ground that § 16(b)'s two-year time period had expired long before Simmonds filed the suits. The United States Court of Appeals for the Ninth Circuit reversed, holding that § 16(b)'s limitations period is tolled "until the insider discloses his transaction in a Section 16(a) filing, regardless of whether the plaintiff knew or should have known of the conduct at issue."

The Supreme Court unanimously reversed, with Chief Justice Roberts not participating. The justices agreed that, assuming the two-year period can be extended, the Ninth Circuit "erred in determining that it is tolled until the filing of a § 16(a) statement." The Court reasoned that the statute starts the limitations clock on "the date such profit was realized," and that Congress could easily have written the statute differently had it wanted tolling until after the filing of a § 16(a) disclosure statement. The Ninth Circuit's rule was also inequitable because it had the potential for "endless tolling" in certain cases. The Court split 4-4, however, on whether § 16(b) established "a period of repose that is not subject to tolling" at all. Instead, the Court remanded to lower federal court "to consider how the usual rules of equitable tolling apply to the facts of this case."

Justice Scalia delivered the opinion for a unanimous court. Chief Justice Roberts did not participate.

Download Opinion of the Court

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