Credit Suisse Securities LLC v. Simmonds

PETITIONER: Credit Suisse Securities LLC et. al.
RESPONDENT: Vanessa Simmonds
LOCATION: U.S. Court of Appeals for the Ninth Circuit, Washington

DOCKET NO.: 10-1261
DECIDED BY: Roberts Court (2010-2016)
LOWER COURT: United States Court of Appeals for the Ninth Circuit

CITATION: 566 US (2012)
GRANTED: Jun 27, 2011
ARGUED: Nov 29, 2011
DECIDED: Mar 26, 2012

Christopher Landau - for the petitioners
Jeffrey I. Tilden - for the respondents
Jeffrey B. Wall - Assistant to the Solicitor General, Department of Justice, as amicus curiae, for the United States

Facts of the case

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?

Media for Credit Suisse Securities LLC v. Simmonds

Audio Transcription for Oral Argument - November 29, 2011 in Credit Suisse Securities LLC v. Simmonds

Audio Transcription for Opinion Announcement - March 26, 2012 in Credit Suisse Securities LLC v. Simmonds

John G. Roberts, Jr.:

Justice Scalia has our opinion this morning in case, 10-1261, Credit Suisse Securities versus Simmonds.

Antonin Scalia:

This case is here on certiorari to the United States Court of Appeals for the Ninth Circuit.

Under Section 16(b) of the Securities Exchange Act of 1934, a corporation or a security holder of that corporation may bring suit against the corporation's insiders who realize any profits from the purchase and sale or the sale and purchase of the corporation's securities within a six-month period.

These profits are called short-swing profits.

Section 16(b) seeks to ensure that corporate insiders do not profit from inside information by requiring them to disgorge these "short-swing" profits to turn them over to the corporation.

In a successful disgorgement action and this is probably not irrelevant to the present case, attorney's fees are typically awarded to the victorious plaintiff.

Section 16(b) imposes a form of strict liability requiring disgorgement even if the insiders did not trade on inside information or intent to profit on the basis of such information.

At issue in this case is the requirement that Section 16(b) actions be brought within two years after the date the profit was realized, that's what the statute says.

Vanessa Simmonds filed nearly 55 -- filed 55 nearly identical 16(b) disgorgement actions against financial institutions, including these petitioners, which had underwritten various initial public offerings, IPOs in the 1990s and 2000.

She did not bring these suits until 2007, but contended that the two-year statute did not apply because the underwriters had failed to comply with Section 16(a) which requires corporate insiders to file disclosure statements showing any changes in their ownership interest.

As relevant here, the United States District Court dismissed 24 of Simmonds' lawsuits on the ground that 16(b)'s two-year period had expired long before they were filed.

The Ninth Circuit reversed.

Citing its prior decision in a case called Whittaker v. Whittaker Corporation, the Ninth Circuit held that 16(b)'s limitation 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."

We granted certiorari and now vacate and remand.

Petitioners maintain that 16(b)'s two-year period is a period of repose, meaning that it is not to be extended to account for a plaintiff's discovery of the facts underlying a claim.

It's just an absolute two-year rule.

We are equally divided on that question, but we conclude that even assuming the two-year period can be extended, the Court of Appeals erred in determining that it isn't -- that it is tolled until the filing of a 16(a) statement.

Section 16 itself quite clearly does not extend the limitation's period until a 16(a) statement is filed.

The two-year clock starts from the date such profit was realized, that's what it says.

Congress could very easily have provided that "no suit shall be brought more than two years after the filing of the statement under 16(a)," it did not.

The text of 16(b) simply does not support the rule that the Court of Appeals adopted in Whittaker and affirmed in this case.

In Whittaker, the Court of Appeals suggested that the background rule of equitable tolling for fraudulent concealment operates to toll the limitations period until a 16(a) statement is filed.

Even accepting that equitable tolling for fraudulent concealment is triggered by the failure to file a 16(a) statement, that is even can -- even assuming this is not a statute of repose, the Whittaker rule is completely divorced from long settled equitable tolling principles.

We have said that generally, a litigant seeking equitable tolling bears the burden of establishing that he "has been pursuing his rights diligently."

It is well established moreover that a limitation's period is tolled because of fraudulent concealment of facts, the tolling ceases when those facts are or should have been discovered by the plaintiff.

Allowing tolling to continue beyond that point and until a 16(a) statement is filed would in fact be inequitable and inconsistent with the general purpose of statute -- of statutes of limitations which is to protect defendants against sale or unduly delayed claims.

Simmonds' arguments in support of the Whittaker rule are unpersuasive.

She argues that a contrary rule would obstruct Congress' objective of curbing "short-swing" speculation.

This objective according to Simmonds is served by 16(a) statements which provide the information necessary to alert plaintiffs to bring 16(b) actions.

But that congressional objective is fully served by traditional equitable tolling rules under which the limitation's period would not expire until two years after a reasonably diligent plaintiff would have learned the facts underlying a 16(b) action.