Credit Suisse Securities (USA) LLC v. Simmonds, 566 U.S. 221 (2012)
In 2007, respondent filed numerous actions under section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. 78p(b), claiming that, in underwriting various initial public offerings in the late 1990's and 2000, petitioners and others inflated the stocks' aftermarket prices, allowing them to profit from the aftermarket sales. She also claimed that petitioners had failed to comply with section 16(a)'s requirement that insiders disclose any changes to their ownership in interests. That failure, according to respondent, tolled section 16(b)'s 2-year time period. The district court dismissed and the Ninth Circuit reversed, citing its decision in Whittaker v. Whittaker Corp. The Court held that, even assuming that the 2-year period could be extended, the Ninth Circuit erred in determining that it was tolled until a section 16(a) statement was filed. The text of section 16(b) simply did not support the Whittaker rule. The rule was also not supported by the background rule of equitable tolling for fraudulent concealment. Accordingly, the Court vacated the judgment of the Ninth Circuit and remanded for further proceedings.
NOTE: Where it is feasible, a syllabus (headnote) will be released, as is being done in connection with this case, at the time the opinion is issued. The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader. See United States v. Detroit Timber & Lumber Co., 200 U. S. 321 .
SUPREME COURT OF THE UNITED STATES
CREDIT SUISSE SECURITIES (USA) LLC et al. v. SIMMONDS
certiorari to the united states court of appeals for the ninth circuit
No. 10–1261. Argued November 29, 2011—Decided March 26, 2012
Under §16(b) of the Securities Exchange Act of 1934, a corporation or security holder of that corporation may sue corporate insiders who realize profits from the purchase and sale, or sale and purchase, of the corporation’s securities within any 6-month period. The Act provides that such suits must be brought within “two years after the date such profit was realized.” 15 U. S. C. §78p(b).
In 2007, respondent Simmonds filed numerous §16(b) actions, claiming that, in underwriting various initial public offerings in the late 1990’s and 2000, petitioners and others inflated the stocks’ aftermarket prices, allowing them to profit from the aftermarket sales. She also claimed that petitioners had failed to comply with §16(a)’s requirement that insiders disclose any changes to their ownership interests. That failure, according to Simmonds, tolled §16(b)’s 2-year time period. The District Court dismissed the complaints as untimely. The Ninth Circuit reversed. Citing its decision in Whittaker v. Whittaker Corp., 639 F. 2d 516, it held that the limitations period is tolled until an insider files the §16(a) disclosure statement “regardless of whether the plaintiff knew or should have known of the conduct at issue.”
Held: Even assuming that the 2-year period can be extended (a question on which the Court is equally divided), the Ninth Circuit erred in determining that it is tolled until a §16(a) statement is filed. The text of §16(b)—which starts the clock from “the date such profit was realized,” §78p(b)—simply does not support the Whittaker rule. The rule is also not supported by the background rule of equitable tolling for fraudulent concealment. Under long-settled equitable-tolling principles, a litigant must establish “(1) that he has been pursuing his rights diligently, and (2) that some extraordinary circumstances stood in his way.” Pace v. DiGuglielmo, 544 U. S. 408 . Tolling therefore ceases when fraudulently concealed facts are, or should have been, discovered by the plaintiff. Allowing tolling to continue beyond that point would be inequitable and inconsistent with the general purpose of statutes of limitations: “to protect defendants against stale or unduly delayed claims.” John R. Sand & Gravel Co. v. United States, 552 U. S. 130 . The Whittaker rule’s inequity is especially apparent here, where the theory of §16(b) liability is so novel that petitioners can plausibly claim that they were not aware they had to file a §16(a) statement. Under the Whittaker rule, alleged insiders who disclaim the necessity of filing are compelled either to file or to face the prospect of §16(b) litigation in perpetuity. Had Congress intended the possibility of such endless tolling, it would have said so. Simmonds’ arguments to the contrary are unpersuasive. The lower courts should consider in the first instance how usual equitable tolling rules apply in this case. Pp. 4–8.
638 F. 3d 1072, vacated and remanded.
Scalia, J., delivered the opinion of the Court, in which all other Members joined, except Roberts, C. J., who took no part in the consideration or decision of the case.
NOTICE: This opinion is subject to formal revision before publication in the preliminary print of the United States Reports. Readers are requested to notify the Reporter of Decisions, Supreme Court of the United States, Washington, D. C. 20543, of any typographical or other formal errors, in order that corrections may be made before the preliminary print goes to press.
SUPREME COURT OF THE UNITED STATES
CREDIT SUISSE SECURITIES (USA) LLC, et al., PETITIONERS v. VANESSA SIMMONDS
on writ of certiorari to the united states court of appeals for the ninth circuit
[March 26, 2012]
Justice Scalia delivered the opinion of the Court.
We consider whether the 2-year period to file suit against a corporate insider under §16(b) of the Securities Exchange Act of 1934, 15 U. S. C. §78p(b), begins to run only upon the insider’s filing of the disclosure statement required by §16(a) of the Act, §78p(a).
Under §16(b) of the Exchange Act, 48Stat. 896, as amended, a corporation or security holder of that corporation may bring suit against the officers, directors, and certain beneficial owners [ 1 ] of the corporation who realize any profits from the purchase and sale, or sale and purchase, of the corporation’s securities within any 6-month period. “The statute imposes a form of strict liability” and requires insiders to disgorge these “short-swing” profits “even if they did not trade on inside information or in- tend to profit on the basis of such information.” Gollust v. Mendell, 501 U. S. 115, 122 (1991) . Section 16(b) provides that suits must be brought within “two years after the date such profit was realized.” [ 2 ] 15 U. S. C. §78p(b).
In 2007, respondent Vanessa Simmonds filed 55 nearly identical actions under §16(b) against financial institutions that had underwritten various initial public offerings (IPOs) in the late 1990’s and 2000, including these petitioners. [ 3 ] In a representative complaint, she alleged that the underwriters and the issuers’ insiders employed various mechanisms to inflate the aftermarket price of the stock to a level above the IPO price, allowing them to profit from the aftermarket sale. App. 59. She further alleged that, as a group, the underwriters and the insiders owned in excess of 10% of the outstanding stock during the relevant time period, which subjected them to both disgorgement of profits under §16(b) and the reporting requirements of §16(a). Id., at 61. See 15 U. S. C. §78m(d)(3); 17 CFR §§240.13d–5(b)(1) and 240.16a–1(a)(1) (2011). The latter requires insiders to disclose any changes to their ownership interests on a document known as a Form 4, specified in the Securities and Exchange Commission regulations. 15 U. S. C. §78p(a)(2)(C); 17 CFR §240.16a–3(a). Simmonds alleged that the underwriters failed to comply with that requirement, thereby tolling §16(b)’s 2-year time period. [ 4 ] App. 62.
Simmonds’ lawsuits were consolidated for pretrial purposes, and the United States District Court for the Western District of Washington dismissed all of her complaints. [ 5 ] In re: Section 16(b) Litigation, 602 F. Supp. 2d 1202 (2009). As relevant here, the court granted petitioners’ motion to dismiss 24 complaints on the ground that §16(b)’s 2-year time period had expired long before Simmonds filed the suits. The United States Court of Appeals for the Ninth Circuit reversed in relevant part. 638 F. 3d 1072 (2011). Citing its decision in Whittaker v. Whittaker Corp., 639 F. 2d 516 (1981), the court held that §16(b)’s limitations period is “tolled until the insider discloses his transactions in a Section 16(a) filing, regardless of whether the plaintiff knew or should have known of the conduct at issue.” 638 F. 3d, at 1095. Judge Milan Smith, Jr., the author of the panel opinion, also specially concurred, expressing his disagreement with the Whittaker rule, but noting that the court was compelled to follow Circuit precedent. Id., at 1099–1101. We granted certiorari, 564 U. S. ___ (2011).
Petitioners maintain that these suits were properly dismissed because they were filed more than two years af-ter the alleged profits were realized. Pointing to dictum in Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U. S. 350 (1991) , petitioners argue that §16(b)’s limitations period is a period of repose, which is not to be “extended to account for a plaintiff’s discovery of the facts underlying a claim.” Brief for Petitioners 17. See Lampf, supra, at 360, n. 5 (“Section 16(b) . . . sets a 2-year . . . period of repose”). We do not reach that contention, because we conclude that, even assuming that the 2-year period can be extended, the Ninth Circuit erred in de-termining that it is tolled until the filing of a §16(a) statement.
In adopting its rule in Whittaker, the Ninth Circuit ex-pressed its concern that “[i]t would be a simple matter for the unscrupulous to avoid the salutary effect of Section 16(b) . . . simply by failing to file . . . reports in violation of subdivision (a) and thereby concealing from prospective plaintiffs the information they would need” to bring a §16(b) action. 639 F. 2d, at 528 (internal quotation marks omitted). Assuming that is correct, it does not follow that the limitations period is tolled until the §16(a) statement is filed. Section 16 itself quite clearly does not extend the period in that manner. The 2-year clock starts from “the date such profit was realized.” §78p(b). Congress could have very easily provided that “no such suit shall be brought more than two years after the filing of a statement under subsection (a)(2)(C).” But it did not. The text of §16 simply does not support the Whittaker rule.
The Whittaker court suggested that the background rule of equitable tolling for fraudulent concealment [ 6 ] operates to toll the limitations period until the §16(a) statement is filed. See 639 F. 2d, at 527, and n. 9. Even accepting that equitable tolling for fraudulent concealment is triggered by the failure to file a §16(a) statement, the Whittaker rule is completely divorced from long-settled equitable-tolling principles. “Generally, a litigant seeking equitable tolling bears the burden of establishing two elements: (1) that he has been pursuing his rights diligently, and (2) that some extraordinary circumstances stood in his way.” Pace v. DiGuglielmo, 544 U. S. 408, 418 (2005) (emphasis added). It is well established, moreover, that when a limitations period is tolled because of fraudulent concealment of facts, the tolling ceases when those facts are, or should have been, discovered by the plaintiff. 2 C. Corman, Limitation of Actions §9.7.1, pp. 55–57 (1991). Thus, we have explained that the statute does not begin to run until discovery of the fraud “ ‘where the party injured by the fraud remains in ignorance of it without any fault or want of diligence or care on his part.’ ” Lampf, supra, at 363 (quoting Bailey v. Glover, 21 Wall. 342, 348 (1875); emphasis added). Allowing tolling to continue beyond the point at which a §16(b) plaintiff is aware, or should have been aware, of the facts underlying the claim would quite certainly be inequitable and inconsistent with the general purpose of statutes of limitations: “to protect defendants against stale or unduly delayed claims.” John R. Sand & Gravel Co. v. United States, 552 U. S. 130, 133 (2008) .
The inequity of the Whittaker rule is especially apparent in a case such as this, where the theory of §16(b) liability of underwriters is so novel that petitioners can plausibly claim that they were not aware they were required to file a §16(a) statement. And where they disclaim the necessity of filing, the Whittaker rule compels them either to file or to face the prospect of §16(b) litigation in perpetuity. Simmonds has acknowledged that “under her theory she could buy stocks in companies who had IPOs 20 years ago and bring claims for short-swing transactions if the underwriters had undervalued a stock.” 602 F. Supp. 2d, at 1218. The potential for such endless tolling in cases in which a reasonably diligent plaintiff would know of the facts underlying the action is out of step with the purpose of limitations periods in general. And it is especially at odds with a provision that imposes strict liability on putative insiders, see Gollust, 501 U. S., at 122. Had Congress intended this result, it most certainly would have said so.
Simmonds maintains that failing to apply the Whittaker rule would obstruct Congress’s objective of curbing short-swing speculation by corporate insiders. This objective, according to Simmonds, is served by §16(a) statements, which “provide the information necessary to trigger §16(b) enforcement.” Brief for Respondent 24. Simmonds—like the Ninth Circuit in Whittaker—disregards the most glaring indication that Congress did not intend that the limitations period be categorically tolled until the statement is filed: The limitations provision does not say so. This fact alone is reason enough to reject a departure from settled equitable-tolling principles. Moreover, §16’s purpose is fully served by the rules outlined above, under which the limitations period would not expire until two years after a reasonably diligent plaintiff would have learned the facts underlying a §16(b) action. The usual equitable-tolling inquiry will thus take account of the unavailability of sources of information other than the §16(a) filing. Cf., e.g., Ruth v. Unifund CCR Partners, 604 F. 3d 908, 911–913 (CA6 2010); Santos ex rel. Beato v. United States, 559 F. 3d 189, 202–203 (CA3 2009). The oddity of Simmonds’ position is well demonstrated by the circumstances of this case. Under the Whittaker rule, because petitioners have yet to file §16(a) statements (as noted earlier they do not think themselves subject to that requirement), Simmonds still has two years to bring suit, even though she is so well aware of her alleged cause of action that she has already sued. If §16(a) statements were, as Simmonds suggests, indispensable to a party’s ability to sue, Simmonds would not be here.
Simmonds also asserts that application of established equitable-tolling doctrine in this context would be in-consistent with Congress’s intention to establish in §16 a clear rule that is capable of “mechanical application.” Brief for Respondent 57 (internal quotation marks omitted). Equitable tolling, after all, involves fact-intensive disputes “about what the notice was, where it was disseminated, who received it, when it was received, and whether it provides sufficient notice of relevant Section 16(a) facts.” Id, at 56–57. Of course this argument counsels just as much in favor of the “statute of repose” rule that petitioners urge (that is, no tolling whatever) as it does in favor of the Whittaker rule. No tolling is certainly an easily administrable bright-line rule. And assuming some form of tolling does apply, it is preferable to apply that form which Congress was certainly aware of, as opposed to the rule the Ninth Circuit has fashioned. [ 7 ] See Meyer v. Holley, 537 U. S. 280, 286 (2003) (“Congress’ silence, while permitting an inference that Congress intended to apply ordinary background tort principles, cannot show that it intended to apply an unusual modification of those rules”).
* * *
Having determined that §16(b)’s limitations period is not tolled until the filing of a §16(a) statement, we remand for the lower courts to consider how the usual rules of equitable tolling apply to the facts of this case. [ 8 ] We are divided 4 to 4 concerning, and thus affirm without precedential effect, the Court of Appeals’ rejection of petitioners’ contention that §16(b) establishes a period of repose that is not subject to tolling. The judgment of the Court of Appeals is vacated, and the case is remanded for further proceedings consistent with this opinion.
It is so ordered.
The Chief Justice took no part in the consideration or decision of this case.
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