Enterprise Mortg. Accept. Co. Sec. v. Enterprise

• Citation: 391 F.3d 401
• Decision Date: 06 December 2004
• Docket Number: Docket No. 03-9265.,Docket No. 04-0392.,Docket No. 03-9261.
• Parties: In re ENTERPRISE MORTGAGE ACCEPTANCE CO., LLC, SECURITIES LITIGATION, Aetna Life Insurance Company and Great Southern Life Insurance Company, Plaintiffs-Appellants, v. ENTERPRISE MORTGAGE ACCEPTANCE COMPANY, LLC, Jeffrey J. Knyal, Kenneth A. Saverin, Charlene S. Chai, Sean A. Stalfort, Koch Industries, Inc., Koch Capital Services, Inc. and Jeffrey R. Thompson, Defendants-Appellees. Jack McBride, on behalf of himself and all others similarly situated, Capital West Asset Management and Employer-Teamsters Local Nos. 175 & 505 Pension, Plaintiffs-Appellants, v. Ira H. Zar, Russell M. Artzt, Computer Associates International, Inc., Charles B. Wang and Sanjay Kumar, Defendants, Ernst & Young LLP, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

391 F.3d 401

In re ENTERPRISE MORTGAGE ACCEPTANCE CO., LLC, SECURITIES LITIGATION, Aetna Life Insurance Company and Great Southern Life Insurance Company, Plaintiffs-Appellants, v. ENTERPRISE MORTGAGE ACCEPTANCE COMPANY, LLC, Jeffrey J. Knyal, Kenneth A. Saverin, Charlene S. Chai, Sean A. Stalfort, Koch Industries, Inc., Koch Capital Services, Inc. and Jeffrey R. Thompson, Defendants-Appellees.

Jack McBride, on behalf of himself and all others similarly situated, Capital West Asset Management and Employer-Teamsters Local Nos. 175 & 505 Pension, Plaintiffs-Appellants, v. Ira H. Zar, Russell M. Artzt, Computer Associates International, Inc., Charles B. Wang and Sanjay Kumar, Defendants, Ernst & Young LLP, Defendant-Appellee.

Docket No. 03-9261.

Docket No. 03-9265.

Docket No. 04-0392.

United States Court of Appeals, Second Circuit.

Argued: October 4, 2004.

Decided: December 6, 2004.

Lawrence C. Fox, Kornstein Veisz Wexler & Pollard, LLP, (Howard S. Veisz, on

the brief), New York, NY, for Plaintiff-Appellant Aetna Life Insurance Company.

Beth D. Jacob, Schiff Hardin LLP, New York, NY, for Plaintiff-Appellant Great Southern Life Insurance Company.

Irwin H. Warren, Weil Gotshal & Manges LLP, New York, NY, for Defendant-Appellee Enterprise Mortgage Acceptance Company, LLC.

Samuel Kadet, Skadden, Arps, Slate, Meagher & Flom LLP, New York, NY, for Defendant-Appellee Koch Industries, Inc., and Koch Capital Services, Inc., LLC.

Anthony M. Radice, Morrison & Foerster, New York, NY, for Defendant-Appellee Jeffrey J. Knyal.

Barry Berke, Kramer Levin Naftalis & Frankel LLP, New York, NY, Defendants-Appellees Charlene S. Chai, Kenneth A. Saverin, and Sean A. Stalfort.

Daniel P. Waxman, Bryan Cave LLP, New York, NY, for Defendant-Appellee Jeffrey R. Thompson.

Barry A. Weprin, Milberg Weiss Bershad & Schulman LLP, New York, N.Y. (Melvyn I. Weiss and Lawrence McCabe, Milberg Weiss Bershad & Schulman LLP, New York, NY, Richard S. Schiffrin, David Kessler, and Andrew L. Zivitz, Schiffrin & Barroway, LLP, Bala Cynwyd, PA, on the brief) for Plaintiffs-Appellants Jack McBride, Capital West Asset Management and Employer-Teamsters Local Nos. 175 & 505 Pension.

Bruce M. Cormier, Ernst & Young LLP, Washington, D.C. (Michael L. Rugen, Richard A. Martin, and Robin E. Wechkin, Heller Ehrman White & McAuliffe, New York, NY, Marguerette N. Hosbach, Ernst & Young LLP, Washington, D.C., on the brief) for Defendant-Appellee Ernst & Young LLP.

Before: MINER, CABRANES, and STRAUB, Circuit Judges.

JOSÉ A. CABRANES, Circuit Judge.

The central issue raised in these appeals is whether Section 804 of the Public Company Accounting Reform and Investor Protection Act of 2002 ("Sarbanes-Oxley"),¹ revives previously expired securities claims. Although these cases involved different parties, were decided by different district courts, and have not been formally consolidated on appeal, we heard them on the same day and now resolve them together because they present substantially identical issues.

For the reasons set forth below, we affirm the respective judgments of the district courts, in each case finding that Section 804 of Sarbanes-Oxley — which extended the statute of limitations for private securities fraud cases from the longer of one year from the date of discovery or three years from the date of occurrence to the longer of two years from the date of discovery or five years from the date of occurrence — does not revive plaintiffs' expired securities fraud claims. In the case of McBride v. Ernst & Young LLP, we further affirm Judge Platt's finding that plaintiffs therein did not commence their action against defendant Ernst & Young within the applicable statute of limitations, and therefore hold that Judge Platt properly dismissed the complaint against Ernst & Young.

BACKGROUND

In each of these cases, plaintiffs initiated actions for securities fraud prior to the passage of Sarbanes-Oxley. Then, after Sarbanes-Oxley was enacted on July 30, 2002, plaintiffs in one case appended additional claims and, in the other, joined an additional defendant, to try to take advantage of Sarbanes-Oxley's extended statute of limitations. The full histories of these cases are reported in the orders of the district courts. See In re Enter. Mortgage Acceptance Co., 295 F.Supp.2d 307 (S.D.N.Y.2003); McBride v. Ernst & Young LLP, No. 02-CR-1266, Mem. & Order (E.D.N.Y. Dec. 3, 2003); see also In re Computer Assocs. 2002 Class Action Sec. Litig., 75 F.Supp.2d 68 (E.D.N.Y.1999). Below, we recount only those facts relevant to the disposition of these appeals.

I. In re Enterprise Mortgage Acceptance Company

In June 2002, plaintiffs Aetna Life Insurance Company ("Aetna") and Great Southern Life Insurance Company ("Great Southern") filed securities fraud complaints against Enterprise Mortgage Acceptance Company ("EMAC"). In re Enter. Mortgage Acceptance Co., 295 F.Supp.2d at 309. In those complaints, Aetna and Great Southern alleged that EMAC violated Section 10(b) of the Securities Act of 1934 and Rule 10b-5, 17 C.F.R. 240.10b-5, promulgated thereunder, when, in private placements between 1998 and 2000, EMAC sold Aetna and Great Southern interests in loans to gasoline stations, car washes, "quick lube" businesses, and convenience stores. Aetna and Great Southern contended that EMAC fraudulently induced them to participate in these offerings with false and materially misleading statements and omissions regarding EMAC's lending practices and that, as a result of their investments in EMAC, Aetna and Great Southern suffered substantial losses.

In Aetna's initial complaint, filed on June 12, 2002, Aetna asserted federal claims concerning its 1998, 1999, and 2000 purchases, and Great Southern, in its June 14, 2002 complaint, asserted state claims concerning its 1999 purchases as well as federal claims concerning its 2000 purchases. In re Enter. Mortgage Acceptance Co., 295 F.Supp.2d at 309. Aetna subsequently withdrew the federal claims relating to its 1998 and 1999 purchases, conceding that these claims were barred by the applicable statute of limitations. Id. at 309 n. 4. In May 2003, Aetna and Great Southern filed new complaints, again under Section 10(b) and Rule 10b-5, concerning Aetna's 1998 and 1999 purchases and Great Southern's 1999 purchases. EMAC moved to dismiss these claims as time-barred, but Aetna and Great Southern argued that their claims had been revived by Sarbanes-Oxley. Id. at 309.

Judge Kram rejected the argument that Sarbanes-Oxley revived stale securities fraud claims and granted EMAC's motion to dismiss those federal claims that related to Aetna and Great Southern's 1998 and 1999 purchases of EMAC securities. Id. at 312. This appeal followed.

II. McBride v. Ernst & Young, LLP

Plaintiff Jack McBride and co-plaintiffs (collectively "McBride") filed a securities fraud class action against Computer Associates ("CA") on February 25, 2002. On October 22, 2002, nearly three months after the enactment of Sarbanes-Oxley, McBride filed an amended complaint against CA and joined Ernst & Young ("E & Y"), CA's accounting firm, as a defendant. In the amended complaint, McBride alleged that "E & Y falsely certified the propriety of the methodology used to compile, and the accuracy of the results reported in, CA's annual securities filings for 1999 and 2000." McBride, Mem. & Order at 2.

E & Y then moved to dismiss the amended complaint as time-barred under the pre-Sarbanes-Oxley statute of limitations. On August 23, 2003, McBride settled with CA, but not with E & Y. Thereafter, Judge Platt found (1) that McBride's claims against E & Y were "not entitled to the more generous statute of limitations provided by Sarbanes-Oxley";² and (2) that McBride had not filed the amended complaint within the applicable pre-Sarbanes-Oxley statute of limitations. Judge Platt therefore dismissed McBride's complaint against E & Y. McBride appealed.

DISCUSSION

I. Standard of Review

We review de novo the determination that Section 804 of Sarbanes-Oxley does not revive already expired securities fraud claims, see, e.g., Perry v. Dowling, 95 F.3d 231, 235 (2d Cir.1996) (de novo review for issues of statutory interpretation), which is a question of first impression for this Court.

II. Analysis

A. Retroactive Application

The Supreme Court has recognized that though Congress is empowered to enact retroactive legislation, retroactive statutes raise such "special concerns," INS v. St. Cyr, 533 U.S. 289, 315, 121 S.Ct. 2271, 150 L.Ed.2d 347 (2001), that "congressional enactments ... will not be construed to have retroactive effect unless their language requires this result," Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208, 109 S.Ct. 468, 102 L.Ed.2d 493 (1988) (internal quotation marks omitted) (emphasis added). Consequently, those "cases where [the] Court has found truly `retroactive' effect adequately authorized by statute have involved statutory language that was so clear it could sustain only one interpretation." Lindh v. Murphy, 521 U.S. 320, 328 n. 4, 117 S.Ct. 2059, 138 L.Ed.2d 481 (1997).

In Landgraf v. USI Film Products, 511 U.S. 244, 114 S.Ct. 1483, 128 L.Ed.2d 229 (1994), the Supreme Court set forth a two-part test for determining whether a statute applies retroactively. At the first stage, a court must "determine whether Congress has expressly prescribed the statute's proper reach." Id. at 280, 114 S.Ct. 1483. If Congress has done so, the inquiry ends, and the court enforces the statute as it is written. See id. If the statute is ambiguous or contains no such express command, the court proceeds to the second stage of the Landgraf test and "determine [s] whether the new statute would have retroactive effect, i.e., whether it would impair rights a party possessed when he acted, increase a party's liability for past conduct, or impose new duties with respect to transactions already completed." Id. If the statute, as applied, would have such an effect, it will not...