Summary
relying on legislative history to find Congressional intent to revive stale claims
Summary of this case from L-3 Communications Corporation v. ClevengerOpinion
CASE NO: 8:02-cv-2115-T-26EAJ
March 31, 2003
AMENDED ORDER
Before the Court is Defendant Morgan Stanley DW, Inc.'s Motion to Dismiss and supporting memorandum (Dkts. 16 and 17), Defendant Paul Grande's Motion to Dismiss (Dkt. 18), Defendant Mark Rodger's Motion to Dismiss (Dkt. 23), and Plaintiffs' Memorandum in Opposition (Dkt. 24). After careful consideration of the allegations of the Complaint and the arguments made, the Court concludes that the motions should be denied.
Defendants Grande and Rodgers adopt and incorporate by reference the memorandum of law submitted by Defendant Morgan Stanley.
Applicability of the Sarbanes-Oxley Act
Extended Statute of Limitations Period
Congress passed the Public Company Accounting Reform and Investor Protection Act of 2002 (popularly referred to as the Sarbanes-Oxley Act) (Act) on July 26, 2002, and President Bush signed the law on July 30, 2002. The Act amended title 28, United States Code § 1658 as follows:
"By mid-July, the Sarbanes-Oxley bill was moving so quickly in Congress that the conference report consisted only of the legislation and did not have the typical commentary that accompanies a bill." John J. Huber, Thomas J. Kim, Latham Watkins, The Response to Enron: The Sarbanes-Oxley Act of 2002 and Commission Rule-making, 1348 Practising Law Inst./Corp. Law and Practice Course Handbook Series, PLI Order No. BO-01 VY, 641, 647 (Dec. 2002).
Sec. 804. STATUTE OF LIMITATIONS FOR SECURITIES FRAUD.
(a) IN GENERAL. — Section 1658 of title 28, United States Code, is amended — (1) by inserting "(a)" before "Except"; and (2) by adding at the end the following:
"(b) Notwithstanding subsection (a), a private right of action that involves a claim of fraud, deceit, manipulation, or contrivance in contravention of a regulatory requirement concerning the securities laws, as defined in section 3(a)(47) of the Securities Exchange Act of 1934 ( 15 U.S.C. § 78c(a)(47)), may be brought not later than the earlier of —
(1) 2 years after the discovery of the facts constituting the violation; or
(2) 5 years after such violation.
(b) EFFECTIVE DATE. — The limitations period provided by section 1658(b) of title 28, United States Code, as added by this section, shall apply to all proceedings addressed by this section that are commenced on or after the date of enactment of this Act.
(c) NO CREATION OF ACTIONS. — Nothing in this section shall create a new, private right of action.
Pub.L. 107-204, Title VIII, § 804(a)(b) and (c). For particular securities violations, the amendment extended the statute of limitations from one year from the discovery of facts constituting the violation to two years, and from three years from the violation to five years. The amendment retained the language denominating that the earlier of the time from the discovery of the facts or the time from the violation prevails.
Section 1658 now provides in pertinent part:
§ 1658. Time limitations on the commencement of civil actions arising under Acts of Congress
(a) . . .
(b) Notwithstanding subsection (a), a private right of action that
involves a claim of fraud, deceit, manipulation, or contrivance in contravention of a regulatory requirement concerning the securities laws, as defined in section 3(a)(47) of the Securities Exchange Act of 1934 ( 15 U.S.C. § 78c(a)(47)), may be brought not later than the earlier of —
(1) 2 years after the discovery of the facts constituting the violation; or
(2) 5 years after such violation.
The Complaint
The Complaint, viewed in the light most favorable to the Plaintiffs, alleges that the unsuitable and unauthorized trades at issue occurred between January 1998 and August 19, 1998. (Dkt. 1 at para. 13). According to the Complaint, on October 1, 2002, the Securities and Exchange Commission (SEC) issued on Order Instituting Public Administrative and Cease-and-Desist Proceedings Pursuant to Sections 15(b) and 21(C) of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions (SEC Order). (Dkt. 1 at para. 3, Exh. A). "The SEC Order censured and fined Defendant Dean Witter, suspended and fined Defendant Grande and fined and barred Defendant Rodgers from association with any broker or dealer." Id. Plaintiffs filed the Complaint on November 15, 2002. (Dkt. 1).
Arguments
Defendants assert that the Act does not apply to claims, such as the Plaintiffs', that have extinguished or expired before the Act was passed on July 30, 2002. Defendants assert that the Plaintiffs' causes of action expired on August 19, 2001, which was three years after the end of the period at issue and long before this action was filed. Defendants rely on several cases from other federal circuits for the proposition that a statute extending a limitations period will not revive claims that expired before the enactment of the statute unless Congress clearly manifested an intent to do so. See, e.g., Kansas Pub. Employees Ret. Sys. v. Reimer Koger Assocs., Inc., 61 F.3d 608, 615 (8th Cir. 1995); Chenault v. United States Postal Serv., 37 F.3d 535, 539 (9th Cir. 1994); Resolution Trust Corp. v. Seale, 13 F.3d 850, 853 (5th Cir. 1994). To apply the Act to this case, Defendants argue, would essentially create a new, private right of action, which is prohibited by the Act. Finally, Defendants contend that Congress did not expressly intend for the Act to revive stale claims. See Resolution Trust Corp. v. Artley, 28 F.3d 1099, 1102 n. 6 (11th Cir. 1994).
In a footnote, Defendant cites two Eleventh Circuit cases in support of this principle. See McKissick v. Busby, 939 F.2d 520, 521 (11th Cir. 1991); Spellissy v. United Techs. Corp., 837 F.2d 967, 975 (11th Cir. 1988).
Plaintiffs respond that the text of the Act is clear and unambiguous and does not create a new, private right of action, nor does the Court need to consider legislative history. See U.S. v. Gonzales, 520 U.S. 1 (1997); Harris v. Garner, 216 F.3d 970, 976 (11th Cir. 2000); Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1283 (11th Cir. 1999) (interpreting statute requires looking to its plain language first and resorting to legislative history to discern congressional intent only when language of statute is unclear). Even if this Court considers the legislative history, Plaintiffs argue, the history supports their contention that Congress intended the Act to apply retroactively.
Retroactive application
The issue in this case is whether the Act applies to revive Plaintiffs' claims, which would have expired under the former three-year statute of limitations on August 18, 2001. If the Act applies to Plaintiffs' claims, which were filed after July 30, 2002, the claims would not be barred by the new five-year limit.
The Supreme Court has previously held that the prior 3-year, now 5-year, limit is a period of repose. See Lampf, Pleva, Lipkind, Prupis Petigrow v. Gilbertson, 501 U.S. 350, 363 (1991).
As to the new 3-year limit from the discovery of facts, Plaintiffs take the position that this period had not expired on the date of the filing of the Complaint, November 15, 2002.
There is no question that Congress holds the power to extend a "previously applicable limitation period that ha[s] already commenced running and to enact a new limitation rule so as to revive claims already barred under a prior rule." See United States v. Hunter, 700 F. Supp. 26, 27 (M.D. Fla. 1988) (citing Chase Sec. Corp. v. Donaldson, 325 U.S. 304, 311-12 (1945)). Absent a clear expression of legislative intent, an extension of a limitations period, however, will not revive barred claims. See Resolution Trust Corp. v. Seale, 13 F.3d 850, 853 (5th Cir. 1994).
The plain language of the amendment provides that the extended limitations period "shall apply to all proceedings addressed by this Section that are commenced on or after the enactment of this Act." Pub.L. 107-204, Title VIII, § 804(b). The effective date, which is July 30, 2002, hinges on the date that "proceedings" commence or commenced rather than on the date the violation occurred. This language, standing alone, seems to presume that the Act affords redress for violations that had already occurred before July 30, 2002.
Having just set forth what the language provides, the Court notes that Congress did not use the phrase "retroactive application" in the statute itself. Thus, the Court turns to the legislative history, which shows that various members of Congress discussed and debated the extension of the statute of limitations. See USA v. Olin Corp., 107 F.3d 1506, 1512-14 (11th Cir. 1997) (courts must effectuate congressional intent regarding retroactivity absent explicit statutory language mandating retroactivity). As a whole, the history reveals that Congress intended to lengthen the statute of limitations to enable people who lost their life-savings to companies like Enron to recover some of their investments. To do so, the amendment must be given retroactive application.
Evidence of the intent of Congress may be discerned from the words of Senator Leahy of Vermont on July 10, 2002, when he stated the following:
When I look at places such as Washington State alone where the pension funds of firefighters and police lost $50 million because of the fraud of the leaders of Enron, I don't feel too sympathetic. We already have a very short statute of limitations in here anyway. We ought to at least have that so people might be able to recover some of the money they have lost, if it is at all possible, instead of just a few executives going up and building their $50 million mansions and hiding it there. There ought to be some way for the people who lost their pensions, lost their life savings, to get it back.
. . . .
Florida lost $335 million because of Enron; the University of California, $144 million — all the way down to Vermont; we lost millions of dollars. These are people who would like, in these kinds of cases, at least to have a statute of limitations such that we can go after them.
. . . .
I am here to try to protect people and give them an opportunity — when there has been such enormous fraud and all the pension funds have been lost, and all the people who have lost their life-savings — give them at least some chance to recover something, especially as the executives of these companies walk off with tens of millions of dollars. We go two-five instead of one-three. That was negotiated and voted on in the Judiciary Committee, and the final bill was passed unanimously.
148 Cong. Rec. S6524-02, *S6534-35 (emphasis added). The language referring to victims of Enron recovering damages indicates the intent to retroactively apply the statute of limitations. Most telling is the requested section-by-section analysis of Title VIII, which was made a part of the record, "in order to provide guidance in the legal interpretation of these provisions of Title VIII of H.R. 2673 before that volume is issued." 148 Cong. Rec. S7418-01, *S7418. The section-by-section analysis provides in pertinent part:
This provision [section 804. — Statute of limitations] states that it is not meant to create any new private cause of action, but only to govern all the already existing private causes of action under the various federal securities laws that have been held to support private causes of action. This provision is intended to lengthen any statute of limitations under federal securities law, and to shorten none. The section, by its plain terms, applies to any and all cases filed after the effective date of the Act, regardless of when the underlying conduct occurred.
148 Cong. Rec. S7418-01, *7418 (emphasis added). The phrase "regardless of when the underlying conduct occurred" demonstrates that Congress intended for the extended statute of limitations to apply retroactively.
Timeliness of Plaintiff's Claims under the Sarbanes-Oxley Act
The Court finds that the arguments raised under this premise require looking at matters outside the four corners of the Complaint. As such, this argument is inappropriate material for a motion to dismiss. See Milburn v. United States, 734 F.2d 762, 765 (11th Cir. 1984).
Interlocutory Review Pursuant to 28 U.S.C. § 1292(b)
Defendant Morgan Stanley has requested this Court to certify an interlocutory appeal of this order pursuant to 28 U.S.C. § 1292(b). (Dkt. 29). In accordance with 28 U.S.C. § 1292(b), this Court finds that this order "involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation." The controlling question of law is whether time-barred claims are revived by the Sarbanes-Oxley Act. Arguably, a difference of opinion may exist as to the interpretation of the Act and its legislative history. An immediate appeal may materially advance the ultimate termination of the litigation, because if this order is reversed, the Plaintiffs' claims will be time-barred.
It is therefore ORDERED AND ADJUDGED as follows:
1. Defendants' Motions to Dismiss (Dkts. 16, 18 and 23) are DENIED.
2. Defendants are permitted to seek a timely interlocutory appeal of this order to the Eleventh Circuit pursuant to 28 U.S.C. § 1292(b), if they so choose.