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DeKalb County Pension Fund v. Transocean Ltd.

United States Court of Appeals, Second Circuit

March 17, 2016

DeKalb County Pension Fund, on behalf of itself and all others similarly situated, Plaintiff-Appellant,
v.
Transocean Ltd., Robert L. Long, Jon. A Marshall, and Transocean Inc., Defendants-Appellees.[*]

Argued: August 18, 2015

On Appeal from the United States District Court for the Southern District of New York

On appeal from the March 14, 2014 judgment of the United States District Court for the Southern District of New York (Lorna G. Schofield, Judge) dismissing as time-barred by the applicable three- year statutes of repose the complaint of plaintiff-appellant DeKalb County Pension Fund ("DeKalb") against defendants-appellees Transocean Ltd., Robert L. Long, Jon A. Marshall, and Transocean Inc. for alleged violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78n(a), 78t(a), and Securities and Exchange Commission Rule 14a-9, 17 C.F.R. § 240.14a-9.

We hold that: (1) Sections 9(f) and 18(a) of the 1934 Act, 15 U.S.C. §§ 78i(f), 78r(a), provide "private right[s] of action that involve[ ] a claim of fraud, deceit, manipulation, or contrivance, " to which a five-year statute of repose now applies after the passage of the Sarbanes-Oxley Act of 2002 ("SOX"), Pub. L. No. 107-204, 116 Stat. 745, but that Section 14(a) does not provide such a private right of action; (2) the same three-year statutes of repose that applied to Sections 9(f) and 18(a) before the passage of SOX, which we borrowed and applied to Section 14 in Ceres Partners v. GEL Associates, 918 F.2d 349 (2d Cir. 1990), still apply to Section 14(a) today; (3) the statutes of repose applicable to Section 14(a) begin to run on the date of the defendant's last culpable act or omission; (4) DeKalb's lead-plaintiff motion does not "relate back" under Rule 17(a)(3) of the Federal Rules of Civil Procedure to the filing of the original class-action complaint; (5) the Private Securities Litigation Reform Act of 1995, Pub. L. No. 104-67, 109 Stat. 737, does not toll the statutes of repose applicable to Section 14(a); and (6) the tolling rule that the Supreme Court described in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), does not extend to the statutes of repose applicable to Section 14(a).

Accordingly, we AFFIRM the District Court's March 14, 2014 judgment dismissing DeKalb's Section 14(a) claim as time-barred by the applicable three-year statutes of repose and its Section 20(a) claim for failure to state a claim upon which relief can be granted.

Geoffrey M. Johnson (Thomas L. Laughlin & David R. Scott, on the brief), Scott䧊 LLP, New York, NY, for Plaintiff-Appellant.

John W. Spiegel, Munger, Tolles & Olson LLP, Los Angeles, CA, for Defendants- Appellees Transocean Ltd., Transocean Inc., and Robert T. Long.

Peter Ligh, Sutherland Asbill & Brennan LLP, New York, NY, for Defendants- Appellees Transocean Ltd., Transocean Inc., and Robert T. Long.

Todd S. Fishman, Allen & Overy LLP, New York, NY, for Defendant-Appellee Jon. A. Marshall.

Before: Cabranes, Raggi, and Wesley, Circuit Judges.

José A. Cabranes, Circuit Judge:

A statute of limitations "creates a time limit for suing in a civil case, based on the date when the claim accrued."[1] By contrast, a statute of repose "puts an outer limit on the right to bring a civil action[, ] . . . measured not from the date on which the claim accrues but instead from the date of the last culpable act or omission of the defendant"-"in essence an absolute bar on a defendant's temporal liability."[2]

This appeal concerns the latter, "relatively rare" species of limitations period.[3] Specifically, the principal questions presented are the following: what statute of repose applies to Section 14(a) of the Securities Exchange Act of 1934 (the "1934 Act"), 15 U.S.C. § 78n(a), and when does that statute of repose begin to run?

In conjunction with Securities and Exchange Commission ("SEC") Rule 14a-9, 17 C.F.R. § 240.14a-9, Section 14(a) prohibits "solicitation . . . made by means of any proxy statement . . . containing any statement which . . . is false or misleading with respect to any material fact."[4] Section 14(a) "do[es] not expressly provide a private right of action, " but "[t]he Supreme Court [has] recognized an implied private right of action for injury caused by [its] violation."[5] Because the private right of action in Section 14(a) is implied and not express, it is no surprise that a statute of repose is not to be found in its text. "[W]e are [therefore] 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."[6]

We have taken up this task before, some 25 years ago. In Ceres Partners v. GEL Associates, 918 F.2d 349 (2d Cir. 1990), we concluded that the implied private rights of action in Section 14 were "analogous" to the express private rights of action in Sections 9(f) and 18(a) of the 1934 Act, 15 U.S.C. §§ 78i(f), [7] 78r(a), [8] in large part because these actions share common goals.[9] We then borrowed the three-year statutes of repose applicable to Sections 9(f) and 18(a) at the time, and applied them to Section 14.[10]

Approximately 12 years after we decided Ceres, however, Congress passed the Sarbanes-Oxley Act of 2002 ("SOX"), Pub. L. No. 107-204, 116 Stat. 745. Section 804(b) of SOX, now codified at 28 U.S.C. § 1658(b), extended to five years the statute of repose applicable to certain "private right[s] of action that involve[ ] a claim of fraud, deceit, manipulation, or contrivance." Section 1658(b) thus necessitates a reexamination of our holding in Ceres. Because in that case we borrowed the three-year statutes of repose then applicable to Sections 9(f) and 18(a) and applied them to Section 14, we must determine whether Sections 9(f), 18(a), or 14(a) provide "private right[s] of action that involve[ ] a claim of fraud, deceit, manipulation, or contrivance, " to which a five-year statute of repose would now apply.

We hold that Sections 9(f) and 18(a) do indeed provide "private right[s] of action that involve[ ] a claim of fraud, deceit, manipulation, or contrivance, " to which a five-year statute of repose now applies by virtue of the enactment of SOX, but that Section 14(a) does not provide such a private right of action. Accordingly, borrowing the statute of repose applicable to Sections 9(f) and 18(a) and applying it to Section 14 is no longer appropriate, because doing so would frustrate, rather than "effect[, ] Congress' objectives in enacting the securities laws."[11]

We therefore hold that the same three-year statutes of repose we applied to Section 14 in Ceres-i.e., the three-year statutes of repose that, until Congress passed SOX, applied to Sections 9(f) and 18(a)-still apply to Section 14(a) today. We further hold that, like all statutes of repose, the statutes of repose applicable to Section 14(a) begin to run on "the date of the [defendant's] last culpable act or omission."[12]

Primarily for these reasons, we AFFIRM the March 14, 2014 judgment of the United States District Court for the Southern District of New York (Lorna G. Schofield, Judge), dismissing the Section 14(a) claim asserted by plaintiff-appellant DeKalb County Pension Fund ("DeKalb") as time-barred by the applicable three- year statutes of repose, and dismissing DeKalb's claim under Section 20(a) of the 1934 Act, 15 U.S.C. § 78t(a), for failure to state a claim upon which relief can be granted.

BACKGROUND

On October 2, 2007, GlobalSantaFe Corp. ("GSF"), "an offshore oil and gas drilling contractor, " and defendant-appellee Transocean Inc. ("Transocean"), "one of the largest international providers of offshore contract drilling services for oil and gas, " jointly disseminated a proxy statement concerning a proposed merger between the companies.[13] The proxy statement included numerous representations regarding Transocean's compliance with various environmental laws, its training and safety programs, and its equipment maintenance, among other subjects.[14] GSF's shareholders, including DeKalb, approved the merger at a November 9, 2007 shareholder meeting.[15] Pursuant to the merger's terms, DeKalb exchanged each of its GSF shares for .4757 Transocean shares and a $22.46 cash payment.[16]

At the time of the merger, Transocean owned various offshore oil-drilling rigs throughout the world-including the now-infamous Deepwater Horizon, which exploded on April 20, 2010, "causing . . . the worst oil spill in U.S. history."[17] In the wake of the Deepwater Horizon disaster, Transocean's stock lost more than half of its value.[18]

On September 30, 2010, Bricklayers and Masons Local Union No. 5, Ohio Pension Fund ("Bricklayers") filed a class-action complaint against Transocean, as well as defendants-appellees Robert L. Long and Jon A. Marshall, the chief executive officers of Transocean and GSF, respectively, at the time of the merger.[19]Bricklayers alleged that the proxy statement disseminated in advance of the merger "contained false and material statements and omissions regarding Transocean's dangerously lax safety protocols for oil drilling and reoccurring issues with [its] blowout preventer . . . technology, " in violation of Section 14(a).[20]

DeKalb made its first appearance in the action on December 3, 2010, when it filed a motion to be appointed as lead plaintiff.[21] The District Court subsequently appointed as lead plaintiff "the DeKalb- Bricklayers Group, " which DeKalb and Bricklayers had formed together in light of "their respective financial stakes in the litigation and their mutual dedication to the prosecution of the action on behalf of the named class."[22]

On April 7, 2011, the DeKalb-Bricklayers Group filed an amended class-action complaint, in which it asserted violations of Section 14(a), Rule 14a-9, and Section 20(a).[23] "Section 20(a) establishes secondary liability for 'every person who, directly or indirectly, controls any person' directly liable under the" 1934 Act.[24]"To state a claim of control person liability under [Section] 20(a), a plaintiff must show, " inter alia, "a primary violation by the controlled person."[25]

On March 30, 2012, the District Court dismissed Bricklayers from the action for lack of standing, finding that it had "failed to proffer any facts showing that it was eligible to vote" on the merger or "that it retained its Transocean stock after" the Deepwater Horizon disaster.[26] This dismissal left DeKalb as the sole lead plaintiff. DeKalb filed a second amended class-action complaint on April 18, 2012, in which it again asserted Section 14(a), Rule 14a-9, and Section 20(a) claims.[27]

On August 30, 2013, defendants-appellees filed a motion under Rule 12(b)(6) of the Federal Rules of Civil Procedure to dismiss DeKalb's Section 14(a) claim on the ground that it was time- barred by the applicable statutes of repose, which motion the District Court granted on March 14, 2014.[28] In granting the motion, the District Court borrowed the three-year statutes of repose that applied to Sections 9(f) and 18(a) before the passage of SOX and applied them to DeKalb's Section 14(a) claim, but did not address whether SOX had extended Section 9(f)'s or Section 18(a)'s statutes of repose to five years, apparently assuming that it had not.[29] The District Court did, however, reject DeKalb's argument that § 1658(b) applies directly to Section 14(a).[30] The District Court also held that the applicable three-year statutes of repose began to run on October 2, 2007, the date on which GSF and Transocean jointly disseminated the allegedly false and misleading proxy statement; that the statutes of repose therefore required DeKalb to have filed its Section 14(a) claim before October 2, 2010; and that DeKalb's Section 14(a) claim was consequently time-barred, inasmuch as DeKalb did not even appear in the action until December 3, 2010, approximately two months ...


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