During 1979 through 1981, plaintiff-respondents purchased units
in seven Connecticut limited partnerships, with the expectation of
realizing federal income tax benefits. Among other things,
petitioner, a New Jersey law firm, aided in organizing the
partnerships and prepared opinion letters addressing the tax
consequences of investing. The partnerships failed, and,
subsequently, the Internal Revenue Service disallowed the claimed
tax benefits. In 1986 and 1987, plaintiff-respondents filed
complaints in the Federal District Court for the District of
Oregon, alleging that they were induced to invest in the
partnerships by misrepresentations in offering memoranda prepared
by petitioner and others, in violation of,
inter alia, §
10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and
asserting that they became aware of the alleged misrepresentations
only in 1985. The court granted summary judgment for the defendants
on the ground that the complaints were not timely filed, ruling
that the claims were governed by Oregon's 2-year limitations period
for fraud claims, the most analogous forum state statute; that
plaintiff-respondents had been on notice of the possibility of
fraud as early as 1982; and that there were no grounds sufficient
to toll the statute of limitations. The Court of Appeals also
selected Oregon's limitations period, but reversed, finding that
there were unresolved factual issues as to when
plaintiff-respondents should have discovered the alleged fraud.
Held: The judgment is reversed.
895 F.2d 1416, 1417, and 1418, reversed.
JUSTICE BLACKMUN delivered the opinion of the Court with respect
to Parts I, II-B, II-C, III, and IV, concluding that:
1. Litigation instituted pursuant to § 10(b) and Rule 10b-5 must
be commenced within one year after the discovery of the facts
constituting the violation and within three years after such
violation, as provided in the 1934 Act and the Securities Act of
1933. State borrowing principles should not be applied where, as
here, the claim asserted is one implied under a statute also
containing an express cause of action with its own time limitation.
The 1934 Act contemporaneously enacted a number of express remedial
provisions actually designed to accommodate a balance of interests
very similar to that at stake in this litigation. And the
limitations periods in all but one of its causes of action include
some variation
Page 501 U. S. 351
of a 1-year period after discovery combined with a 3-year period
of repose. Moreover, in adopting the 1934 Act, Congress also
amended the 1933 Act, adopting the same structure for each of its
causes of action. Neither the 5-year period contained in the 1934
Act's insider trading provision, which was added in 1988, nor state
law fraud provides a closer analogy to § 10(b). Pp.
501 U. S.
358-362.
2. The limitations period is not subject to the doctrine of
equitable tolling. The 1-year period begins after discovery of the
facts constituting the violation, making tolling unnecessary, and
the 3-year limit is a period of repose inconsistent with tolling.
P.
501 U. S.
363.
3. As there is no dispute that the earliest of
plaintiff-respondents complaints was filed more than three years
after petitioner's alleged misrepresentations,
plaintiff-respondents' claims were untimely. P.
501 U. S.
364.
BLACKMUN, J., delivered the opinion of the Court with respect to
Parts I, II-B, II-C, III, and IV, in which REHNQUIST, C.J., and
WHITE, MARSHALL, and SCALIA, JJ., joined, and an opinion with
respect to Part II-A, in which REHNQUIST, C.J., and WHITE and
MARSHALL, JJ., joined. SCALIA, J., filed an opinion concurring in
part and concurring in the judgment,
post, p.
501 U. S. 364.
STEVENS, J., filed a dissenting opinion, in which SOUTER, J.,
joined,
post, p.
501 U. S. 366.
O'CONNOR, J., filed a dissenting opinion, in which KENNEDY, J.,
joined,
post, p.
501 U. S. 369.
KENNEDY, J., filed a dissenting opinion, in which O'CONNOR, J.,
joined,
post, p.
501 U. S.
374.
Page 501 U. S. 352
JUSTICE BLACKMUN delivered the opinion of the Court, except as
to Part II-A.
In this litigation, we must determine which statute of
limitations is applicable to a private suit brought pursuant to §
10(b) of the Securities Exchange Act of 1934, 48 Stat. 891, 15
U.S.C. § 78j(b), and to Securities and Exchange Commission Rule
10b-5, 17 CFR § 240.10b-5 (1990), promulgated thereunder.
I
The controversy arises from the sale of seven Connecticut
limited partnerships formed for the purpose of purchasing and
leasing computer hardware and software. Petitioner Lampf, Pleva,
Lipkind, Prupis & Petigrow is a West Orange, N.J., law firm
that aided in organizing the partnerships and that provided
additional legal services, including the preparation of opinion
letters addressing the tax consequences of investing in the
partnerships. The several plaintiff-respondents purchased units in
one or more of the partnerships during the years 1979 through 1981
with the expectation of realizing federal income tax benefits
therefrom.
The partnerships failed, due in part to the technological
obsolescence of their wares. In late 1982 and early 1983,
plaintiff-respondents received notice that the United States
Internal Revenue Service was investigating the partnerships. The
IRS subsequently disallowed the claimed tax benefits because of
overvaluation of partnership assets and lack of profit motive.
On November 3, 1986, and June 4, 1987, plaintiff-respondents
filed their respective complaints in the United States District
Court for the District of Oregon, naming as defendants petitioner
and others involved in the preparation
Page 501 U. S. 353
of offering memoranda for the partnerships. The complaints
alleged that plaintiff-respondents were induced to invest in the
partnerships by misrepresentations in the offering memoranda, in
violation of, among other things, § 10(b) of the 1934 Act and Rule
10b-5. The claimed misrepresentations were said to include
assurances that the investments would entitle the purchasers to
substantial tax benefits; that the leasing of the hardware and
software packages would generate a profit; that the software was
readily marketable; and that certain equipment appraisals were
accurate and reasonable. Plaintiff-respondents asserted that they
became aware of the alleged misrepresentations only in 1985,
following the disallowance by the IRS of the tax benefits
claimed.
After consolidating the actions for discovery and pretrial
proceedings, the District Court granted summary judgment for the
defendants on the ground that the complaints were not timely filed.
App. to Pet. for Cert. 22A. Following precedent of its controlling
court,
see, e.g., Robuck v. Dean Witter & Co., 649
F.2d 641 (CA9 1980), the District Court ruled that the securities
claims were governed by the state statute of limitations for the
most analogous forum state cause of action. The court determined
this to be Oregon's 2-year limitations period for fraud claims,
Ore.Rev.Stat. § 12.110(1) (1989). The court found that reports to
plaintiff-respondents detailing the declining financial status of
each partnership and allegations of misconduct made known to the
general partners put plaintiff-respondents on "inquiry notice" of
the possibility of fraud as early as October, 1982. App. to Pet.
for Cert. 43A. The court also ruled that the distribution of
certain fiscal reports and the installation of a general partner
previously associated with the defendants did not constitute
fraudulent concealment sufficient to toll the statute of
limitations. Applying the Oregon statute to the facts underlying
plaintiff-respondents' claims, the District Court determined that
each complaint was time-barred.
Page 501 U. S. 354
The Court of Appeals for the Ninth Circuit reversed and remanded
the cases.
See, e.g., Retz v. Leasing Consultants
Associates, 895 F.2d 1418 (1990) (judgment order). In its
unpublished opinion, the Court of Appeals found that unresolved
factual issues as to when plaintiff-respondents discovered or
should have discovered the alleged fraud precluded summary
judgment. Then, as did the District Court, it selected the 2-year
Oregon limitations period. In so doing, it implicitly rejected
petitioner's argument that a federal limitations period should
apply to Rule 10b-5 claims. App. to Pet. for Cert. 8A. In view of
the divergence of opinion among the Circuits regarding the proper
limitations period for Rule 10b-5 claims, [
Footnote 1] we granted certiorari to address this
important issue. 498 U.S. 894 (1990).
II
Plaintiff-respondents maintain that the Court of Appeals
correctly identified common law fraud as the source from which §
10(b) limitations should be derived. They submit that the
underlying policies and practicalities of § 10(b) litigation do not
justify a departure from the traditional practice of "borrowing"
analogous state law statutes of limitations. Petitioner, on the
other hand, argues that a federal period is appropriate, contending
that we must look to the "1- and 3-year" structure applicable to
the express causes of action in § 13 of the Securities Act of 1933,
48 Stat. 84, as amended, 15 U.S.C. § 77m, and to certain of the
express actions in the
Page 501 U. S. 355
1934 Act,
see 15 U.S.C. §§ 78i(e), 78r(c), and 78cc(b).
[
Footnote 2] The Solicitor
General, appearing on behalf of the Securities and Exchange
Commission, agrees that use of a federal period is indicated, but
urges the application of the 5-year statute of repose specified in
§ 20A of the 1934 Act, 15 U.S.C. § 78t-1(b)(4), as added by § 5 of
the Insider Trading and Securities Fraud Enforcement Act of 1988,
102 Stat. 4681. The 5-year period, it is said, accords with
"Congress's most recent views on the accommodation of competing
interests, provides the closest federal analogy, and promises to
yield the best practical and policy results in Rule 10b-5
litigation."
Brief for Securities and Exchange Commission as
Amicus
Curiae 8. For the reasons discussed below, we agree that a
uniform federal period is indicated, but we hold that the express
causes of action contained in the 1933 and 1934 Acts provide the
source.
A
It is the usual rule that, when Congress has failed to provide a
statute of limitations for a federal cause of action, a court
"borrows" or "absorbs" the local time limitation most analogous to
the case at hand.
Wilson v. Garcia, 471 U.
S. 261,
471 U. S.
266-267 (1985);
Automobile Workers v. Hoosier
Cardinal Corp., 383 U. S. 696,
383 U. S. 704
(1966);
Campbell v. Haverhill, 155 U.
S. 610,
155 U. S. 617
(1895). This practice, derived from the Rules of Decision Act, 28
U.S.C. § 1652, has enjoyed sufficient longevity that we may assume
that, in enacting remedial legislation, Congress ordinarily
"intends by its silence that we borrow state law."
Agency
Holding Corp. v. Malley-Duff & Associates, Inc.,
483 U. S. 143,
483 U. S. 147
(1987).
The rule, however, is not without exception. We have recognized
that a state legislature rarely enacts a limitations period with
federal interests in mind,
Occidental Life Ins. Co. of Cal. v.
EEOC, 432 U. S. 355,
432 U. S. 367
(1977), and when the operation
Page 501 U. S. 356
of a state limitations period would frustrate the policies
embraced by the federal enactment, this Court has looked to federal
law for a suitable period.
See, e.g., DelCostello v.
Teamsters, 462 U. S. 151
(1983);
Agency Holding Corp., supra; McAllister v. Magnolia
Petroleum Co., 357 U. S. 221,
357 U. S. 224
(1958). These departures from the state borrowing doctrine have
been motivated by this Court's conclusion that it would be
"inappropriate to conclude that Congress would choose to adopt
state rules at odds with the purpose or operation of federal
substantive law."
DelCostello, 462 U.S. at
462 U. S.
161.
Rooted as it is in the expectations of Congress, the "state
borrowing doctrine" may not be lightly abandoned. We have described
federal borrowing as "a closely circumscribed exception," to be
made
"only 'when a rule from elsewhere in federal law clearly
provides a closer analogy than available state statutes, and when
the federal policies at stake and the practicalities of litigation
make that rule a significantly more appropriate vehicle for
interstitial lawmaking.'"
Reed v. United Transportation Union, 488 U.
S. 319,
488 U. S. 324
(1989), quoting
DelCostello, 462 U.S. at
462 U. S.
172.
Predictably, this determination is a delicate one. Recognizing,
however, that a period must be selected, [
Footnote 3] our cases do provide some guidance as to
whether state or federal borrowing is appropriate and as to the
period best suited to the cause of action under consideration. From
these cases, we are able to distill a hierarchical inquiry for
ascertaining the appropriate limitations period for a federal cause
of action where Congress has not set the time within which such an
action must be brought.
Page 501 U. S. 357
First, the court must determine whether a uniform statute of
limitations is to be selected. Where a federal cause of action
tends in practice to "encompass numerous and diverse topics and
subtopics,"
Wilson v. Garcia, 471 U.S. at
471 U. S. 273,
such that a single state limitations period may not be consistently
applied within a jurisdiction, we have concluded that the federal
interests in predictability and judicial economy counsel the
adoption of one source, or class of sources, for borrowing
purposes.
Id. at
471 U. S.
273-275. This conclusion ultimately may result in the
selection of a single federal provision,
see Agency Holding
Corp., supra, or of a single variety of state actions.
See
Wilson v. Garcia (characterizing all actions under 42 U.S.C. §
1983 as analogous to a state law personal injury action).
Second, assuming a uniform limitations period is appropriate,
the court must decide whether this period should be derived from a
state or a federal source. In making this judgment, the court
should accord particular weight to the geographic character of the
claim:
"The multistate nature of [the federal cause of action at issue]
indicates the desirability of a uniform federal statute of
limitations. With the possibility of multiple state limitations,
the use of state statutes would present the danger of forum
shopping and, at the very least, would 'virtually guarante[e] . . .
complex and expensive litigation over what should be a
straightforward matter.''
Agency Holding Corp., 483 U.S.
at
483 U. S. 154, quoting
Report of the Ad Hoc Civil RICO Task Force of the ABA Section of
Corporation, Banking and Business Law 392 (1985)."
Finally, even where geographic considerations counsel federal
borrowing, the aforementioned presumption of state borrowing
requires that a court determine that an analogous federal source
truly affords a "closer fit" with the cause of action at issue than
does any available state law source. Although considerations
pertinent to this determination will necessarily
Page 501 U. S. 358
vary depending upon the federal cause of action and the
available state and federal analogues, such factors as commonality
of purpose and similarity of elements will be relevant.
B
In the present litigation, our task is complicated by the
nontraditional origins of the § 10(b) cause of action. The text of
§ 10(b) does not provide for private claims. [
Footnote 4] Such claims are of judicial creation,
having been implied under the statute for nearly half a century.
See Kardon v. National Gypsum Co., 69 F. Supp.
512 (ED Pa.1946), cited in
Ernst & Ernst v.
Hochfelder, 425 U. S. 185,
425 U. S. 196,
n. 16 (1976). Although this Court repeatedly has recognized the
validity of such claims,
see Blue Chip Stamps v. Manor Drug
Stores, 421 U. S. 723,
421 U. S. 730
(1975);
Affiliated Ute Citizens of Utah v. United States,
406 U. S. 128,
406 U. S.
150-154 (1972);
Superintendent
Page 501 U. S. 359
of Ins. of N.Y. v. Bankers Life & Casualty Co.,
404 U. S. 6,
404 U. S. 13, n.
9 (1971), we have made no pretense that it was Congress' design to
provide the remedy afforded.
See Ernst & Ernst, 425
U.S. at
425 U. S. 196
("[T]here is no indication that Congress, or the Commission when
adopting Rule 10b-5, contemplated such a remedy") (footnotes
omitted). It is therefore no surprise that the provision contains
no statute of limitations.
In a case such as this, we are faced with the awkward task of
discerning the limitations period that Congress intended courts to
apply to a cause of action it really never knew existed.
Fortunately, however, the drafters of § 10(b) have provided
guidance.
We conclude that where, as here, the claim asserted is one
implied under a statute that also contains an express cause of
action with its own time limitation, a court should look first to
the statute of origin to ascertain the proper limitations period.
We can imagine no clearer indication of how Congress would have
balanced the policy considerations implicit in any limitations
provision than the balance struck by the same Congress in limiting
similar and related protections.
See DelCostello, 462 U.S.
at
462 U. S. 171;
United Parcel Service, Inc. v. Mitchell, 451 U. S.
56,
451 U. S. 69-70
(1981) (opinion concurring in judgment). When the statute of origin
contains comparable express remedial provisions, the inquiry
usually should be at an end. Only where no analogous counterpart is
available should a court then proceed to apply state borrowing
principles.
In the present litigation, there can be no doubt that the
contemporaneously enacted express remedial provisions represent
"a federal statute of limitations actually designed to
accommodate a balance of interests very similar to that at stake
here -- a statute that is, in fact, an analogy to the present
lawsuit more apt than any of the suggested state law
parallels."
DelCostello, 462 U.S. at
462 U. S. 169.
The 1934 Act contained a number of express causes of action, each
with an
Page 501 U. S. 360
explicit limitations period. With only one more restrictive
exception, [
Footnote 5] each of
these includes some variation of a l-year period after discovery
combined with a 3-year period of repose. [
Footnote 6] In adopting the 1934 Act, the 73d Congress
also amended the limitations provision of the 1933 Act, adopting
the l-and-3-year structure for each cause of action contained
therein. [
Footnote 7]
Section 9 of the 1934 Act, 15 U.S.C. § 78i, pertaining to the
willful manipulation of security prices, and § 18, 15 U.S.C. § 78r,
relating to misleading filings, target the precise dangers that are
the focus of § 10(b). Each is an integral element of a complex web
of regulations. Each was intended to facilitate a central goal:
"to protect investors
Page 501 U. S. 361
against manipulation of stock prices through regulation of
transactions upon securities exchanges and in over-the-counter
markets, and to impose regular reporting requirements on companies
whose stock is listed on national securities exchanges."
Ernst & Ernst, 425 U.S. at 195, citing S.Rep. No.
792, 73d Cong., 2d Sess., 1-5 (1934).
C
We therefore conclude that we must reject the Commission's
contention that the 5-year period contained in § 20A, added to the
1934 Act in 1988, is more appropriate for § 10(b) actions than is
the 1- and 3-year structure in the Act's original remedial
provisions. The Insider Trading and Securities Fraud Enforcement
Act of 1988, which became law more than 50 years after the original
securities statutes, focuses upon a specific problem, namely, the
"purchasing or selling [of] a security while in possession of
material, nonpublic information," 15 U.S.C. § 78t-1(a), that is,
"insider trading." Recognizing the unique difficulties in
identifying evidence of such activities, the 100th Congress adopted
§ 20A as one of "a variety of measures designed to provide greater
deterrence, detection and punishment of violations of insider
trading." H.R.Rep. No. 100-910, p. 7 (1988). There is no indication
that the drafters of § 20A sought to extend that enhanced
protection to other provisions of the 1934 Act. Indeed, the text of
§ 20A indicates the contrary. Section 20A(d) states:
"Nothing in this section shall be construed to limit or
condition the right of any person to bring an action to enforce a
requirement of this chapter or the availability of any cause of
action implied from a provision of this chapter."
15 U.S.C. § 78t-1(d).
The Commission further argues that, because some conduct that is
violative of § 10(b) is also actionable under § 20A, adoption of a
1- and 3-year structure would subject actions based on § 10(b) to
two different statutes of limitations. But § 20A also prohibits
insider trading activities that violate sections of
Page 501 U. S. 362
the 1934 Act with express limitations periods. The language of §
20A makes clear that the 100th Congress sought to alter the
remedies available in insider trading cases, and only in insider
trading cases. There is no inconsistency.
Finally, the Commission contends that the adoption of a 3-year
period of repose would frustrate the policies underlying § 10(b).
The inclusion, however, of the 1- and 3-year structure in the broad
range of express securities actions contained in the 1933 and 1934
Acts suggests a congressional determination that a 3-year period is
sufficient.
See Ceres Partners v. GEL Associates, 918 F.2d
349, 363 (CA2 1990).
Thus, we agree with every Court of Appeals that has been called
upon to apply a federal statute of limitations to a § 10(b) claim
that the express causes of action contained in the 1933 and 1934
Acts provide a more appropriate statute of limitations than does §
20A.
See Ceres Partners, supra; Short v. Belleville Shoe Mfg.
Co., 908 F.2d 1385 (CA7 1990),
cert. pending, No.
90-526;
In re Data Access Systems Securities Litigation,
843 F.2d 1537 (CA3),
cert. denied sub nom. Vitiello v. I.
Kahlowsky & Co., 488 U.S. 849 (1988).
Necessarily, we also reject plaintiff-respondents' assertion
that state law fraud provides the closest analogy to § 10(b). The
analytical framework we adopt above makes consideration of state
law alternatives unnecessary where Congress has provided an express
limitations period for correlative remedies within the same
enactment. [
Footnote 8]
Page 501 U. S. 363
III
Finally, we address plaintiff-respondents' contention that,
whatever limitations period is applicable to § 10(b) claims, that
period must be subject to the doctrine of equitable tolling.
Plaintiff-respondents note, correctly, that "[t]ime requirements in
law suits . . . are customarily subject to
equitable tolling.'"
Irwin v. Department of Veterans Affairs, 498 U. S.
89, 498 U. S. 95
(1990), citing Hallstrom v. Tillamook County, 493 U. S.
20, 493 U. S. 27
(1989). Thus, this Court has said that, in the usual case,
"where the party injured by the fraud remains in ignorance of it
without any fault or want of diligence or care on his part, the bar
of the statute does not begin to run until the fraud is discovered,
though there be no special circumstances or efforts on the part of
the party committing the fraud to conceal it from the knowledge of
the other party."
Bailey v.
Glover, 21 Wall. 342,
88 U. S. 348
(1875);
see also Holmberg v. Armbrecht, 327 U.
S. 392,
327 U. S.
396-397 (1946). Notwithstanding this venerable
principle, it is evident that the equitable tolling doctrine is
fundamentally inconsistent with the 1- and 3-year structure.
The 1-year period, by its terms, begins after discovery of the
facts constituting the violation, making tolling unnecessary. The
3-year limit is a period of repose inconsistent with tolling. One
commentator explains: "[T]he inclusion of the three-year period can
have no significance in this context other than to impose an
outside limit." Bloomenthal, The Statute of Limitations and Rule
10b-5 Claims: A Study in Judicial Lassitude, 60 U.Colo.L.Rev. 235,
288 (1989).
See also ABA Committee on Federal Regulation
of Securities, Report of the Task Force on Statute of Limitations
for Implied Actions 645, 655 (1986) (advancing "the inescapable
conclusion that Congress did not intend equitable tolling to apply
in actions under the securities laws"). Because the purpose of the
3-year limitation is clearly to serve as a cutoff, we hold that
tolling principles do not apply to that period.
Page 501 U. S. 364
IV
Litigation instituted pursuant to § 10(b) and Rule 10b-5
therefore must be commenced within one year after the discovery of
the facts constituting the violation and within three years after
such violation. [
Footnote 9] As
there is no dispute that the earliest of plaintiff-respondents'
complaints was filed more than three years after petitioner's
alleged misrepresentations, plaintiff-respondents' claims were
untimely. [
Footnote 10]
The judgment of the Court of Appeals is reversed.
It is so ordered.
[
Footnote 1]
See, e.g., Nesbit v. McNeil, 896 F.2d 380 (CA9 1990)
(applying state limitations period governing common law fraud);
Bath v. Bushkin, Gaims, Gaines and Jonas, 913 F.2d 817
(CA10 1990) (same);
O'Hara v. Kovens, 625 F.2d 15 (CA4
1980),
cert. denied, 449 U.S. 1124 (1981) (applying state
blue sky limitations period);
Forrestal Village, Inc. v.
Graham, 179 U.S.App.D.C. 225, 551 F.2d 411 (1977) (same);
In re Data Access Systems Securities Litigation, 843 F.2d
1537 (CA3),
cert. denied sub nom. Vitiello v. I. Kahlowsky
& Co., 488 U.S. 849 (1988) (establishing uniform federal
period);
Short v. Belleville Shoe Mfg. Co., 908 F.2d 1385
(CA7 1990),
cert. pending, No. 90-526 (same).
[
Footnote 2]
Although not identical in language, all these relate to one year
after discovery and to three years after violation.
[
Footnote 3]
On rare occasions, this Court has found it to be Congress'
intent that no time limitation be imposed upon a federal cause of
action.
See, e.g., Occidental Life Ins. Co. of Cal. v.
EEOC, 432 U. S. 355
(1977). No party in the present litigation argues that this was
Congress' purpose in enacting § 10(b), and we agree that there is
no evidence of such intent.
[
Footnote 4]
Section 10 of the 1934 Act provides:
"It shall be unlawful for any person, directly or indirectly, by
the use of any means or instrumentality of interstate commerce or
of the mails, or of any facility of any national securities
exchange -- "
"
* * * *"
"(b) To use or employ, in connection with the purchase or sale
of any security . . . any manipulative or deceptive device or
contrivance in contravention of such rules and regulations as the
Commission may prescribe as necessary or appropriate in the public
interest or for the protection of investors."
15 U.S.C. § 78j.
Commission Rule 10b-5, first promulgated in 1942, now
provides:
"It shall be unlawful for any person, directly or indirectly, by
the use of any means or instrumentality of interstate commerce, or
of the mails or of any facility of any national securities
exchange,"
"(a) To employ any device, scheme, or artifice to defraud,"
"(b) To make any untrue statement of a material fact or to omit
to state a material fact necessary in order to make the statements
made, in the light of the circumstances under which they were made,
not misleading, or"
"(c) To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon any
person,"
"in connection with the purchase or sale of any security."
17 CFR § 240.10b-5 (1990).
[
Footnote 5]
Section 16(b), 15 U.S.C. § 78p(b), sets a 2-year, rather than a
3-year, period of repose. Because that provision requires the
disgorgement of unlawful profits and differs in focus from § 10(b)
and from the other express causes of action, we do not find § 16(b)
to be an appropriate source from which to borrow a limitations
period here.
[
Footnote 6]
Section 9(e) of the 1934 Act provides:
"No action shall be maintained to enforce any liability created
under this section, unless brought within one year after the
discovery of the facts constituting the violation and within three
years after such violation."
15 U.S.C. § 78i(e). Section 18 (c) of the 1934 Act provides:
"No action shall be maintained to enforce any liability created
under this section unless brought within one year after the
discovery of the facts constituting the cause of action and within
three years after such cause of action accrued."
15 U.S.C. § 78r(c).
[
Footnote 7]
Section 13 of the 1933 Act, as so amended, provides:
"No action shall be maintained to enforce any liability created
under section 77k or 771(2) of this title unless brought within one
year after the discovery of the untrue statement or the omission,
or after such discovery should have been made by the exercise of
reasonable diligence, or, if the action is to enforce a liability
created under section 771(1) of this title, unless brought within
one year after the violation upon which it is based. In no event
shall any such action be brought to enforce a liability created
under section 77k or 771(1) of this title more than three years
after the security was bona fide offered to the public, or under
section 771(2) of this title more than three years after the
sale."
15 U.S.C. § 77m.
[
Footnote 8]
JUSTICE KENNEDY would borrow the 1-year limitations period
contained in the 1934 Act, but not the accompanying period of
repose. In our view, the 1- and 3-year scheme represents an
indivisible determination by Congress as to the appropriate cutoff
point for claims under the statute. It would disserve that
legislative determination to sever the two periods. Moreover, we
find no support in our cases for the practice of borrowing only a
portion of an express statute of limitations. Indeed, such a
practice comes close to the type of judicial policymaking that our
borrowing doctrine was intended to avoid.
[
Footnote 9]
The Commission notes, correctly, that the various 1- and 3-year
periods contained in the 1934 and 1933 Acts differ slightly in
terminology. To the extent that these distinctions in the future
might prove significant, we select as the governing standard for an
action under § 10(b) the language of § 9(e) of the 1934 Act, 15
U.S.C. § 78i(e).
[
Footnote 10]
Section 313(a) of the Judicial Improvements Act of 1990, 104
Stat. 5114, reads:
"Except as otherwise provided by law, a civil action arising
under an Act of Congress enacted after the date of the enactment of
this section may not be commenced later than 4 years after the
cause of action accrues."
Section 313(c) states that the
"amendments made by this section shall apply with respect to
causes of action accruing on or after the date [December 1, 1990,]
of the enactment of this Act."
This new statute obviously has no application in the present
litigation.
JUSTICE SCALIA, concurring in part and concurring in the
judgment.
Although I accept the
stare decisis effect of decisions
we have made with respect to the statutes of limitations applicable
to particular federal causes of action, I continue to disagree with
the methodology the Court has very recently adopted for purposes of
making those decisions. In my view, absent a congressionally
created limitations period state periods govern, or, if they are
inconsistent with the purposes of the federal Act, no limitations
period exists.
See Agency Holding Corp. v.
Malley-Duff & Associates, Inc., 483 U.S.
Page 501 U. S. 365
143,
483 U. S.
157-170 (1987) (SCALIA, J., concurring in judgment),
see also Reed v. United Transportation Union, 488 U.
S. 319,
488 U. S. 334
(1989) (SCALIA, J., concurring in judgment).
The present case presents a distinctive difficulty because it
involves one of those so-called "implied" causes of action that,
for several decades, this Court was prone to discover in -- or,
more accurately, create in reliance upon -- federal legislation.
See Thompson v. Thompson, 484 U.
S. 174,
484 U. S. 190
(1988) (SCALIA, J., concurring in judgment). Raising up causes of
action where a statute has not created them may be a proper
function for common law courts, but not for federal tribunals.
See id. at
484 U. S.
191-192;
Cannon v. University of Chicago,
441 U. S. 677,
441 U. S.
730-749 (1979) (Powell, J., dissenting). We have done
so, however, and thus the question arises what statute of
limitations applies to such a suit. Congress has not had the
opportunity (since it did not itself create the cause of action) to
consider whether it is content with the state limitations or would
prefer to craft its own rule. That lack of opportunity is
particularly apparent in the present case, since Congress did
create special limitations periods for the Securities Exchange Act
of 1934 causes of actions that it actually enacted.
See 15
U.S.C. §§ 78p(b), 78i(e), 78r(c);
see also § 77m.
When confronted with this situation, the only thing to be said
for applying my ordinary (and the Court's pre-1983 traditional)
rule is that the unintended and possibly irrational results will
certainly deter judicial invention of causes of action. That is not
an unworthy goal, but to pursue it in that fashion would be highly
unjust to those who must litigate past inventions. An alternative
approach would be to say that, since we "implied" the cause of
action, we ought to "imply" an appropriate statute of limitations
as well. That is just enough, but too lawless to be imagined. It
seems to me the most responsible approach, where the enactment that
has been the occasion for our creation of a cause of action
contains a limitations period for an analogous cause of action, is
to use
Page 501 U. S. 366
that. We are imagining here. And I agree with the Court that
"[w]e can imagine no clearer indication of how Congress would
have balanced the policy considerations implicit in any limitations
provision than the balance struck by the same Congress in limiting
similar and related protections."
Ante at
501 U.S.
359.
I join the judgment of the Court, and all except Part II-A of
the Court's opinion.
JUSTICE STEVENS, with whom JUSTICE SOUTER joins, dissenting.
In my opinion, the Court has undertaken a lawmaking task that
should properly be performed by Congress. Starting from the premise
that the federal cause of action for violating § 10(b) of the
Securities Exchange Act of 1934, 48 Stat. 891, 15 U.S.C. § 78j(b),
was created out of whole cloth by the Judiciary, it concludes that
the Judiciary must also have the authority to fashion the time
limitations applicable to such an action. A page from the history
of § 10(b) litigation will explain why both the premise and the
conclusion are flawed.
The private cause of action for violating § 10(b) was first
recognized in
Kardon v. National Gypsum
Co., 69 F. Supp.
512 (ED Pa.1946). In recognizing this implied right of action,
Judge Kirkpatrick merely applied what was then a well settled rule
of federal law. As was true during most of our history, the federal
courts then presumed that a statute enacted to benefit a special
class provided a remedy for those members injured by violations of
the statute.
See Texas & Pacific R. Co. v. Rigsby,
241 U. S. 33,
241 U. S. 39-40
(1916). [
Footnote 2/1] Judge
Kirkpatrick did not make "new law" when he applied
Page 501 U. S. 367
this presumption to a federal statute enacted for the benefit of
investors in securities that are traded in interstate commerce.
During the ensuing four decades of administering § 10(b)
litigation, the federal courts also applied settled law when they
looked to state law to find the rules governing the timeliness of
claims.
See DelCostello v. Teamsters, 462 U.
S. 151,
462 U. S.
172-173 (1983) (STEVENS, J., dissenting). [
Footnote 2/2] It was not until 1988 that a
federal court decided that it would be better policy to have a
uniform federal statute of limitations apply to claims of this
kind.
See In re Data Access Systems Securities Litigation,
843 F.2d 1537 (CA3). I agree that such a uniform limitations rule
is preferable to the often chaotic traditional approach of looking
to the analogous state limitation. I believe, however, that
Congress, rather than the Federal Judiciary, has the responsibility
for making the policy determinations that are required in rejecting
a rule selected under the doctrine of state borrowing, long applied
in § 10(b) cases, and choosing a new limitations period and its
associated tolling rules. [
Footnote
2/3] When a legislature enacts a new rule of law governing the
timeliness of legal action, it can -- and usually does -- specify
the effective date of the rule and determine the extent to which it
shall apply to pending claims.
See, e.g., 104 Stat. 5114,
quoted
ante at
501 U. S. 364,
n. 10. When the Court ventures into this lawmaking arena, however,
it inevitably raises questions concerning the retroactivity of its
new rule that are difficult and arguably inconsistent with the
neutral,
Page 501 U. S. 368
nonpolicymaking role of the judge.
See Chevron Oil Co. v.
Huson, 404 U. S. 97
(1971);
In re Data Access, 843 F.2d at 1551 (Seitz J.,
dissenting).
The Court's rejection of the traditional rule of applying a
state limitations period when the federal statute is silent is not
justified by this Court's prior cases. Despite the majority's
recognition of the traditional rule,
ante at
501 U. S. 355,
it effectively repudiates it by holding that "[o]nly where no
analogous counterpart [within the statute] is available should a
court then proceed to apply state borrowing principles."
Ante at
501 U.S.
359. The Court's principal justification for this departure
is that it took similar action in
DelCostello, supra. I
registered my dissent in that case for reasons similar to those I
express today. In that case, there was nothing in the statute to
lead me to believe that Congress intended to depart from our
settled practice of looking to analogous state limitations.
Id. at
462 U. S.
171-173. Likewise, in this case, I can find nothing in
the Securities Exchange Act of 1934 that leads me to believe that
Congress intended us to depart from our traditional rule and
overrule four decades of established law.
The other case on which the Court primarily relies,
Agency
Holding Corp. v. Malley-Duff & Associates, Inc.,
483 U. S. 143
(1987), is distinguishable from this case.
Agency Holding
did not involve a change in a rule of law that had been settled for
40 years. Furthermore, in that case, the Court found an explicit
intent to pattern the RICO private remedy after the Clayton Act's
private antitrust remedy. The remedy in the Clayton Act was subject
to a 4-year statute of limitations, and the Court reasonably
inferred that Congress wanted the same limitations period to apply
to both statutes. The Court has not found a similar intent to
pattern § 10 of the Securities Exchange Act of 1934 after those
sections subject to a 1- and 3-year limitation.
See ante
at
501 U. S.
360-361.
The policy choices that the Court makes today may well be wise
-- even though they are at odds with the recommendation of the
Executive Branch -- but that is not a sufficient
Page 501 U. S. 369
justification for making a change in what was well settled law
during the years between 1946 and 1988 governing the timeliness of
action impliedly authorized by a federal statute. This Court has
recognized that a rule of statutory construction that has been
consistently applied for several decades acquires a clarity that
"is simply beyond peradventure."
Herman & MacLean v.
Huddleston, 459 U. S. 375,
459 U. S. 380
(1983). I believe that the Court should continue to observe that
principle in this case. The Court's occasional departure from that
principle does not justify today's refusal to comply with the Rules
of Decision Act.
See, e.g., Shearson/ American Express Inc. v.
McMahon, 482 U. S. 220,
482 U. S. 268
(1987) (STEVENS, J., dissenting). Accordingly, I respectfully
dissent.
[
Footnote 2/1]
In
Texas & Pacific R. Co. v. Rigsby, a unanimous
Court stated this presumption:
"A disregard of the command of the statute is a wrongful act,
and where it results in damage to one of the class for whose
especial benefit the statute was enacted, the right to recover the
damages from the party in default is implied, according to a
doctrine of the common law. . . . This is but an application of the
maxim,
Ubi jus ibi remedium."
241 U.S. at
241 U. S.
39-40.
[
Footnote 2/2]
Federal judges have "borrowed" state statutes of limitations
because they were directed to do so by the Congress of the United
States under the Rules of Decision Act, 28 U.S.C. 1652.
DelCostello v. Teamsters, 462 U.S. at
462 U. S.
172-173 (STEVENS, J., dissenting);
see also Agency
Holding Corp. v. Malley-Duff & Associates, Inc.,
483 U. S. 143,
483 U. S.
157-165 (1987) (SCALIA, J., concurring in judgment).
[
Footnote 2/3]
Congress is perfectly capable of making these decisions. When
confronted with the same need for uniformity in treble damages
litigation under the antitrust laws in 1955, it enacted § 5 of the
Clayton Act to provide a 4-year period of limitations.
See
69 Stat. 283, 15 U.S.C. § 15b.
JUSTICE O'CONNOR, with whom JUSTICE KENNEDY joins,
dissenting.
I agree that predictability and judicial economy counsel the
adoption of a uniform federal statute of limitations for actions
brought under § 10(b) and Rule 10b-5. For the reasons stated by
JUSTICE KENNEDY, however, I believe we should adopt the "1 year
from discovery rule," but not the 3-year period of repose. I write
separately only to express my disagreement with the Court's
decision in
501 U. S. In
holding that respondent's suit is time-barred under a limitations
period that did not exist before today, the Court departs
drastically from our established practice and inflicts an injustice
on the respondents. The Court declines to explain its unprecedented
decision, or even to acknowledge its unusual character.
Respondents, plaintiffs below, filed this action in Federal
District Court in 1986. Everyone agrees that, at that time, their
claims were governed by the state statute of limitations for the
most analogous state cause of action. This was mandated by a solid
wall of binding Ninth Circuit authority dating
Page 501 U. S. 370
back more than 30 years. [
Footnote
3/1]
See ante at
501 U. S. 353.
The case proceeded in the District Court and the Court of Appeals
for almost four years. During that time, the law never changed; the
governing limitations period remained the analogous state statute
of limitations. [
Footnote 3/2]
Notwithstanding respondents' entirely proper reliance on this
limitations period, the Court now holds that their suit must be
dismissed as untimely because respondents did not comply with a
federal limitations period announced for the first time today -- 4
1/2 years after the suit was filed. Quite simply, the Court shuts
the courthouse door on respondents because they were unable to
predict the future.
One might get the impression from the Court's matter-of-fact
handling of the retroactivity issue that this is our standard
practice.
501 U. S.
after all, only two sentences: the first sentence sets out the 1-
and 3-year rule; the second states that respondents' complaint is
untimely for failure to comply with the rule. Surely, one might
think, if the Court were doing anything out of the ordinary, it
would comment on the fact.
Apparently not. This Court has, on several occasions, announced
new statutes of limitations. Until today, however, the Court had
never applied a new limitations period retroactively to the very
case in which it announced the new rule, so as to bar an action
that was timely under binding Circuit precedent. Our practice has
been instead to evaluate the case at hand by the old limitations
period, reserving the new rule for application in future cases.
Page 501 U. S. 371
A prime example is
Chevron Oil Co. v. Huson,
404 U. S. 97
(1971). The issue in that case was whether state or federal law
governed the timeliness of an action brought under a particular
federal statute. At the time the lawsuit was initiated, the rule
was that federal law governed. This Court changed the rule, holding
that the timeliness of an action should be governed by state law.
The Court declined to apply the state statute of limitations in
that case, however, because the action had been filed long before
the new rule was announced. The Court recognized, sensibly, that
its decision overruled a long line of Court of Appeals' decisions
on which the respondent had properly relied,
id. at
404 U. S. 107;
that retroactive application would be inconsistent with the purpose
of using state statutes of limitations,
id. at
404 U. S.
107-108; and that it would be highly inequitable to
pretend that the respondent had "
slept on his rights'" when, in
reality, he had complied fully with the law as it existed, and
could not have foreseen that the law would change. Id. at
404 U. S.
108.
We followed precisely the same course several years later in
Saint Francis College v. Al-Khazraji, 481 U.
S. 604 (1987). We declined to apply a decision
specifying the applicable statute of limitations retroactively
because doing so would bar a suit that, under controlling Circuit
precedent, had been filed in a timely manner. We relied expressly
on the analysis of
Chevron Oil, holding that a decision
identifying a new limitations period should be applied only
prospectively where it overrules clearly established Circuit
precedent, where retroactive application would be inconsistent with
the purpose of the underlying statute, and where doing so would be
"manifestly inequitable."
Saint Francis College, supra, at
481 U. S.
608-609.
Chevron Oil and
Saint Francis College are
based on fundamental notions of justified reliance and due process.
They reflect a straightforward application of an earlier line of
cases holding that it violates due process to apply a limitations
period retroactively and thereby deprive a party arbitrarily of
a
Page 501 U. S. 372
right to be heard in court.
See Wilson v. Iseminger,
185 U. S. 55,
185 U. S. 62
(1902);
Brinkerhoff-Faris Trust & Savings Co. v. Hill,
281 U. S. 673,
281 U. S.
681-682 (1930). Not surprisingly, then, the Court's
decision in
Chevron Oil and
Saint Francis College
not to apply new limitations periods retroactively generated no
disagreement among Members of the Court: the opinion in
Chevron
Oil was joined by all but one Justice, who did not reach the
retroactivity question;
Saint Francis College was
unanimous.
Only last Term, eight Justices reaffirmed the common sense rule
that decisions specifying the applicable statute of limitations
apply only prospectively.
See American Trucking Assns., Inc. v.
Smith, 496 U. S. 167
(1990). The question presented in
American Trucking was
whether an earlier decision of the Court -- striking down as
unconstitutional a particular state highway tax scheme -- would
apply retroactively. In the course of explaining why the ruling
would not apply retroactively, the plurality opinion relied heavily
on our statute of limitations cases:
"When considering the retroactive applicability of decisions
newly defining statutes of limitations, the Court has focused on
the action taken in reliance on the old limitation period --
usually, the filing of an action. Where a litigant filed a claim
that would have been timely under the prior limitation period, the
Court has held that the new statute of limitation would not bar his
suit."
Id. at
496 U. S.
193-194.
Four other Justices, while disagreeing that
Chevron
Oil's retroactivity analysis should apply in other contexts,
reaffirmed its application to statutes of limitations. The
dissenting Justices stated explicitly that it would be
"most inequitable to [hold] that [a] plaintiff ha[s] "
slept
on his rights'" during a period in which neither he nor the
defendant could have known the time limitation that applied to the
case."
American Trucking, supra at
496 U. S. 220
(STEVENS, J., dissenting), quoting
Chevron Oil, supra at
404 U. S.
108.
Page 501 U. S. 373
After
American Trucking, the continued vitality of
Chevron Oil with respect to statutes of limitations is --
or should be -- irrefutable; nothing in
James B. Beam
Distilling Co. v. Georgia, post, p.
501 U. S. 529,
alters this fact. The present case is indistinguishable from
Chevron Oil, and retroactive application should therefore
be denied. All three
Chevron Oil factors are met. First,
in adopting a federal statute of limitations, the Court overrules
clearly established Circuit precedent; the Court admits as much.
Ante at
501 U. S. 353.
Second, the Court explains that "the federal interes[t] in
predictability" demands a uniform standard.
Ante at
501 U. S. 357.
I agree, but surely predictability cannot favor applying
retroactively a limitations period that the respondent could not
possibly have foreseen. Third, the inequitable results are obvious.
After spending 4 1/2 years in court and tens of thousands of
dollars in attorney's fees, respondents' suit is dismissed for
failure to comply with a limitations period that did not exist
until today.
Earlier this Term, the Court observed that "the doctrine of
stare decisis serves profoundly important purposes in our
legal system."
California v. Acevedo, 500 U.
S. 565,
500 U. S. 579
(1991). If that is so, it is difficult to understand the Court's
decision today to apply retroactively a brand new statute of
limitations.
501 U. S.
without discussing the relevant cases or even acknowledging the
issue, declines to follow the precedent established in
Chevron
Oil, Saint Francis College, and
American Trucking,
not to mention
Wilson and
Brinkerhoff-Faris.
The Court's cursory treatment of the retroactivity question
cannot be an oversight. The parties briefed the issue in this
Court.
See Brief for Respondents 45-48; Reply Brief for
Petitioner 18-20. In addition, the United States, filing an
amicus curiae brief on behalf of the Securities and
Exchange Commission, addressed the issue explicitly, urging the
Court to remand so that the lower court may address the
retroactivity question in the first instance. Nevertheless,
Page 501 U. S. 374
the Court, for reasons unknown and unexplained, chooses to
ignore the issue, thereby visiting unprecedented unfairness on
respondents.
Even if I agreed with the limitations period adopted by the
Court, I would dissent from
501 U. S. Our
prior cases dictate that the federal statute of limitations
announced today should not be applied retroactively. I would remand
so that the lower courts may determine in the first instance the
timeliness of respondents' lawsuit.
[
Footnote 3/1]
See Robuck v. Dean Witter & Co., 649 F.2d 641, 644
(1980);
Williams v. Sinclair, 529 F.2d 1383, 1387 (1976);
Douglass v. Glenn E. Hinton Investments, Inc., 440 F.2d
912, 914-916 (1971);
Hecht v. Harris, Upham & Co., 430
F.2d 1202, 1210 (1970);
Royal Air Properties, Inc. v.
Smith, 312 F.2d 210, 214 (1962);
Fratt v. Robinson,
203 F.2d 627, 634-635 (1953).
[
Footnote 3/2]
See Davis v. Birr, Wilson & Co., 839 F.2d 1369,
1369-1370 (CA9 1988);
Volk v. D. A. Davidson & Co.,
816 F.2d 1406, 1411-1412 (CA9 1987);
Semegen v. Weidner,
780 F.2d 727, 733 (CA9 1985);
SEC v. Seaboard Corp., 677
F.2d 1301, 1308-1309 (CA9 1982).
JUSTICE KENNEDY, with whom JUSTICE O'CONNOR joins,
dissenting.
I am in full agreement with the Court's determination that,
under our precedents, a uniform federal statute of limitations is
appropriate for private actions brought under § 10(b) of the
Securities Exchange Act of 1934, and that we should adopt as a
limitations period the "1 year from discovery" rule Congress
employed in various provisions of the 1934 Act. I must note my
disagreement, however, with the Court's simultaneous adoption of
the 3-year period of repose Congress also employed in a number of
the 1934 Act's provisions. This absolute time bar on private §
10(b) suits conflicts with traditional limitations periods for
fraud-based actions, frustrates the usefulness of § 10(b) in
protecting defrauded investors, and imposes severe practical
limitations on a federal implied cause of action that has become an
essential component of the protection the law gives to investors
who have been injured by unlawful practices.
As the Court recognizes, in the absence of an express
limitations period in a federal statute, courts as a general matter
should apply the most analogous state limitations period or, in
rare cases, no limitations period at all. This rule does not apply,
however,
"when a rule from elsewhere in federal law clearly provides a
closer analogy than available state statutes, and when the federal
policies at stake and the practicalities of litigation make that
rule a significantly more appropriate vehicle for interstitial
lawmaking."
DelCostello
v.
Page 501 U. S. 375
Teamsters, 462 U. S. 151,
462 U. S. 172
(1983);
see Reed v. United Transportation Union,
488 U. S. 319,
488 U. S. 324
(1989). Applying this principle, the Court looks first to the
express private rights of action in the 1934 Act itself to find
what it believes are the appropriate limitations periods to apply
here. One cannot fault the Court's mode of analysis; given that §
10(b) actions are implied under the 1934 Act, it makes sense for us
to look to the limitations periods Congress established under the
Act.
See DelCostello, supra at
462 U. S. 171;
United Parcel Service, Inc. v. Mitchell, 451 U. S.
56,
451 U. S. 68, n.
4 (1981). That does not relieve us, however, of our obligation to
reject a limitations rule that would "frustrate or significantly
interfere with federal policies."
Reed, 488 U.S. at
488 U. S. 327.
When determining the appropriate statute of limitations to apply,
we must give careful consideration to the policies underlying a
federal statute and to the practical difficulties aggrieved parties
may have in establishing a violation.
Ibid.; Wilson v.
Garcia, 471 U. S. 261,
471 U. S. 268
(1985).
This is not a case where the Court identifies a specific statute
and follows each of its terms. As the Court is careful to note, the
1934 Act does not provide a single limitations period for all
private actions brought under its express provisions. Rather, the
Act makes three separate and distinct references to statutes of
limitations. The Court rejects outright one of these references, a
2-year statute of repose for actions brought under § 16 of the 1934
Act, 15 U.S.C. § 78p(b), and purports to follow the other two. §§
78i(e), 78r(c). The latter two references employ 1-year, 3-year
schemes similar to one the Court establishes here, but each has its
own unique wording. The Court does not identify any reasons for
finding one to be controlling, so it is unnecessary to engage in
close grammatical construction to separate the 1-year discovery
period from the 3-year statute of repose.
It is of even greater importance to note that both of the
statutes in question relate to express causes of action which, in
their purpose and underlying rationale, differ from causes
Page 501 U. S. 376
of action implied under § 10(b). The limitations statutes to
which the Court refers apply to strict liability violations or, in
the case of § 78i(e), to a rarely used remedy under § 9 of the 1934
Act.
See L. Loss, Fundamentals of Securities Regulation
920 (2d ed.1988). Neither relates to a cause of action of the scope
and coverage of an implied action under § 10(b). Nor does either
rest on the common law fraud model underlying most § 10(b)
actions.
Section 10(b) provides investors with significant protections
from fraudulent practices in the securities markets. Intended as a
comprehensive antifraud provision operating even when more specific
laws have no application, § 10(b) makes it unlawful to employ in
connection with the purchase or sale of any security "any
manipulative or deceptive device or contrivance" in violation of
the Securities and Exchange Commission's rules. 15 U.S.C. § 78j.
Although Congress gave the Commission the primary role in enforcing
this section, private § 10(b) suits constitute "an essential tool
for enforcement of the 1934 Act's requirements,"
Basic Inc. v.
Levinson, 485 U. S. 224,
485 U. S. 231
(1988), and are "
a necessary supplement to Commission action.'"
Bateman Eichler, Hill Richards, Inc. v. Berner,
472 U. S. 299,
472 U. S. 310
(1985) (quoting J. I. Case Co. v. Borak, 377 U.
S. 426, 377 U. S. 432
(1964)). We have made it clear that rules facilitating § 10(b)
litigation "suppor[t] the congressional policy embodied in the 1934
Act" of combating all forms of securities fraud. Basic,
supra at 485 U. S.
245.
The practical and legal obstacles to bringing a private § 10(b)
action are significant. Once federal jurisdiction is established, a
§ 10(b) plaintiff must prove elements that are similar to those in
actions for common law fraud.
See Herman & MacLean v.
Huddleston, 459 U. S. 375
(1983). Each requires proof of a false or misleading statement or
material omission,
Santa Fe Industries, Inc. v. Green,
430 U. S. 462
(1977), reliance thereon,
Basic, 485 U.S. at
485 U. S. 243;
cf. id. at
485 U. S. 245
(reliance presumed in § 10(b) cases proving "fraud on the
Page 501 U. S. 377
market"), damages caused by the wrongdoing,
Randall v.
Loftsgaarden, 478 U. S. 647,
478 U. S. 663
(1986), and
scienter on the part of the defendant,
Ernst & Ernst v. Hochfelder, 425 U.
S. 185 (1976). Given the complexity of modern securities
markets, these facts may be difficult to prove.
The real burden on most investors, however, is the initial
matter of discovering whether a violation of the securities laws
occurred at all. This is particularly the case for victims of the
classic fraud-like case that often arises under § 10(b).
"[C]oncealment is inherent in most securities fraud cases."
American Bar Association, Report of the Task Force on Statute of
Limitations for Implied Actions, 41 Bus.Lawyer 645, 654 (1985). The
most extensive and corrupt schemes may not be discovered within the
time allowed for bringing an express cause of action under the 1934
Act. Ponzi schemes, for example, can maintain the illusion of a
profit-making enterprise for years, and sophisticated investors may
not be able to discover the fraud until long after its
perpetration.
Id. at 656. Indeed, in
Ernst &
Ernst, the alleged fraudulent scheme had gone undetected for
over 25 years before it was revealed in a stockbroker's suicide
note. 425 U.S. at
425 U. S.
189.
The practicalities of litigation, indeed the simple facts of
business life, are such that the rule adopted today will "thwart
the legislative purpose of creating an effective remedy" for
victims of securities fraud.
Agency Holding Corp. v.
Malley-Duff & Associates, Inc., 483 U.
S. 143,
483 U. S. 154
(1987). By adopting a 3-year period of repose, the Court makes a §
10(b) action all but a dead letter for injured investors who by no
conceivable standard of fairness or practicality can be expected to
file suit within three years after the violation occurred. In so
doing, the Court also turns its back on the almost uniform rule
rejecting short periods of repose for fraud-based actions. In the
vast majority of States, the only limitations periods on fraud
actions run from the time of a victim's discovery of the fraud.
Shapiro & Blauner, Securities Litigation in the Aftermath of
In Re Data Access Securities
Page 501 U. S. 378
Litigation, 24 New England L.Rev. 537, 549-550 (1989).
Only a small minority of States constrain fraud actions with
absolute periods of repose, and those that do typically permit
actions to be brought within at least five years.
See,
e.g., Fla.Stat. § 95.11(4)(e) (1991) (5-year period of
repose); Ky.Rev.Stat.Ann. § 413.120(11) (Michie 1990) (10-year
period of repose); Mo.Rev.Stat. § 516.120(5) (1986) (10-year period
of repose). Congress itself has recognized the importance of
granting victims of fraud a reasonable time to discover the facts
underlying the fraud and to prepare a case against its
perpetrators.
See, e.g., Interstate Land Sales Full
Disclosure Act, 15 U.S.C. § 1711(a)(2) (action may be brought
within three years from discovery of violation); Insider Trading
and Securities Fraud Enforcement Act of 1988, 15 U.S.C. §
78t-1(b)(4) (action may be brought within five years of the
violation). The Court, however, does not.
A reasonable statute of repose, even as applied against
fraud-based actions, is not without its merits. It may sometimes be
easier to determine when a fraud occurred than when it should have
been discovered. But more important, limitations periods in general
promote important considerations of fairness. "Just determinations
of fact cannot be made when, because of the passage of time, the
memories of witnesses have faded or evidence is lost."
Wilson, 471 U.S. at
471 U. S. 271.
Notwithstanding these considerations, my view is that a 3-year
absolute time bar is inconsistent with the practical realities of §
10(b) litigation and the congressional policies underlying that
remedy. The "1 year from discovery" rule is sufficient to ensure a
fair balance between protecting the legitimate interests of
aggrieved investors, yet preventing stale claims. In the extreme
case, moreover, when the period between the alleged fraud and its
discovery is of extraordinary length, courts may apply equitable
principles such as laches should it be unfair to permit the claim.
See DelCostello, 462 U.S. at
462 U. S. 162;
Holmberg v.
Armbrecht,
Page 501 U. S. 379
327 U. S. 392
(1946). A 3-year absolute bar on § 10(b) actions simply tips the
scale too far in favor of wrongdoers.
The Court's decision today forecloses any means of recovery for
a defrauded investor whose only mistake was not discovering a
concealed fraud within an unforgiving period of repose. As fraud in
the securities markets remains a serious national concern, Congress
may decide that the rule announced by the Court today should be
corrected. But even if prompt congressional action is taken, it
will not avail defrauded investors caught by the Court's new and
unforgiving rule, here applied on a retroactive basis to a pending
action.
With respect, I dissent, and would remand with instructions that
a § 10(b) action may be brought at any time within one year after
an investor discovered or should have discovered a violation. In
any event, I would permit the litigants in this case to rely upon
settled Ninth Circuit precedent as setting the applicable
limitations period in this case, and join JUSTICE O'CONNOR's
dissenting opinion in full.