S.E.C. v. Rind

• Decision Date: 19 April 1993
• Docket Number: No. 91-55972,91-55972
• Citation: 991 F.2d 1486
• Parties: , Fed. Sec. L. Rep. P 97,421 SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee, v. Maurice RIND, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1486

991 F.2d 1486

61 USLW 2655, Fed. Sec. L. Rep. P 97,421

SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee, v. Maurice RIND, Defendant-Appellant.

No. 91-55972.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Nov. 4, 1992.

Decided April 19, 1993.

Edward Gartenberg, Burris, Drulias & Gartenberg, Los Angeles, CA, for defendant-appellant.

Jacob H. Stillman, Associate Gen. Counsel, Washington, DC, for plaintiff-appellee.

Appeal from the United States District Court for the Central District of California.

Before: WALLACE, Chief Judge, TROTT and T.G. NELSON, Circuit Judges.

WALLACE, Chief Judge:

This interlocutory appeal raises an important issue of first impression: what, if any, statute of limitations applies to a civil enforcement action brought by the Securities and Exchange Commission (Commission). We must also decide whether the right to a jury trial guaranteed by the Seventh Amendment attaches where the Commission sues for disgorgement of illegal profits. The district court held that the Commission was not bound by a statute of limitations and that Rind did not have a right to a jury trial. The district court had jurisdiction pursuant to 15 U.S.C. §§ 77v(a), 78u(e), and 78aa. We have jurisdiction over this timely appeal pursuant to 28 U.S.C. § 1292(b). We affirm.

I

On August 15, 1990, the Commission filed a civil enforcement action against Rind and 13 other defendants pursuant to section 20(b) of the Securities Act of 1933 (1933 Act), 15 U.S.C. § 77t(b), and section 21(d) of the Securities and Exchange Act of 1934 (1934 Act), 15 U.S.C. § 78u(d). The complaint alleged that Rind and his co-defendants had engaged in securities fraud and had violated various reporting and recordkeeping provisions of the federal securities laws in connection with the well-publicized collapse of ZZZZ Best Company (Z Best). Rind is the only defendant left in this case; 12 consented to judgments against them, and the other defaulted.

In its first amended complaint, the Commission alleges that Rind concocted a fraudulent transaction which allowed Z Best to overstate its assets vastly, thereby enabling the company to raise millions of dollars in capital. The Commission asserts that Rind received at least $700,000 for his efforts. The alleged overstatement of Z Best's assets was contained in the company's registration statements, in violation of section 17(a) of the 1933 Act, 15 U.S.C. § 77q(a), section 10(b) of the 1934 Act, 15 U.S.C. § 78j(b), and Securities and Exchange Commission Rule (Rule) 10b-5, 17 C.F.R. § 240.10b-5 (1992). Rind was also charged with aiding and abetting various reporting and recordkeeping violations by the company, in violation of sections 13(a) and (b)(2) of the 1934 Act, 15 U.S.C. §§ 78m(a) and (b)(2), and Rules 12b-20, 13a-13, and 13b2-1, 17 C.F.R. §§ 240.12b-20, 240.13a-13, and 240.13b2-1 (1992). The Commission seeks a permanent injunction prohibiting Rind from violating these provisions in the future and requiring disgorgement of any unlawful gains.

The district court granted the Commission's motion to strike Rind's jury demand on the ground that disgorgement is an equitable remedy. The court also granted the Commission's motion to strike Rind's statute of limitations defenses and denied his motion for judgment on the pleadings based on the statute of limitations. The district court certified the statute of limitations and jury trial questions for interlocutory appeal, and we granted Rind permission to appeal.

II

Congress provided the Commission with express statutory authority to administer and enforce the 1933 and 1934 Acts. See § 20 of the 1933 Act, 15 U.S.C. § 77t; § 21 of the 1934 Act, 15 U.S.C. § 78u. It did not, however, explicitly subject the Commission to a statute of limitations. Our task is to interpret what Congress meant by this silence.

Relying on the Supreme Court's recent decision in Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, --- U.S. ----, 111 S.Ct. 2773, 115 L.Ed.2d 321 (1991) (Lampf ), Rind argues that Congress intended a one-year statute of limitations with a three-year period of repose to govern civil enforcement actions brought by the Commission. He asserts that the latest that the Commission should have been put on notice of a potential fraud by Rind would have been in July 1987, when Z Best filed for bankruptcy. Because this was over three years before the Commission filed its initial complaint, Rind argues that the Commission's action against him is time barred.

Without disputing the chronology offered by Rind, the Commission responds that it is not subject to any limitations period. We review de novo the district court's ruling on the appropriate statute of limitations. Felton v. Unisource Corp., 940 F.2d 503, 508 (9th Cir.1991).

A.

Lampf involved a dispute between a group of disgruntled investors in tax-shelter partnerships and a law firm that had helped organize the partnerships and prepared opinion letters addressing the tax consequences of investing in the partnerships. --- U.S. at ----, 111 S.Ct. at 2776. The investors charged the law firm with misrepresenting the value of the partnerships and brought suit under section 10(b) of the 1934 Act and Rule 10b-5 promulgated thereunder. Id. at ---, 111 S.Ct. at 2776-77.

The text of section 10(b) does not provide for private rights of action. Such "implied" claims owe their genesis to the courts and not Congress. The Court thus was "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." Id. at ----, 111 S.Ct. at 2780.

In order to determine what statute of limitations Congress would have adopted had only it thought to create a private right of action under section 10(b), the Court turned to the securities laws themselves. It concluded that "where, as here, the claim asserted is one implied under a statute that also contains an express cause of action with its own time limitation, a court should look first to the statute of origin to ascertain the proper limitations period." Id. A court should borrow a state limitations provision only where the statute of origin does not yield an analogous federal rule. Id.

Congress imposed an explicit statute of limitations for each of the private claims created by the 1933 and 1934 Acts. With one exception, each of these provides for a one-year time period after discovery of the alleged securities violation combined with a three-year period of repose. See § 13 of the 1933 Act, 15 U.S.C. § 77m; §§ 9(e) and 18(c) of the 1934 Act, 15 U.S.C. §§ 78i(e) and 78r(c). The single exception is section 16(b) of the 1934 Act, 15 U.S.C. § 78p(b), which only provides for a two-year period of repose. Along with these claims, section 10(b) formed part of a "complex web of regulations." Lampf, --- U.S. at ----, 111 S.Ct. at 2781. Together, these provisions promote the "central goal" of the securities laws: to protect investors from stock manipulations and to impose regular reporting requirements on publicly-traded securities. Id. Against this statutory backdrop, the Court reasoned that the 1- and 3-year structure best reflected how Congress would have balanced the policy considerations at play in litigation under section 10(b). See id. at ---- - ----, 111 S.Ct. at 2780-81.

The Court thus concluded that "[l]itigation instituted pursuant to § 10(b) and Rule 10b-5 ... must be commenced within one year after the discovery of the facts constituting the violation and within three years after such violation." Id. at ----, 111 S.Ct. at 2782. Because the investors in Lampf had filed suit more than three years after the alleged misrepresentations, the Court declared that their claims were untimely. See id.

Although acknowledging that Lampf itself only involved private litigants, Rind asserts that when the Commission sues for disgorgement it is seeking money damages in the same manner as any private plaintiff. He therefore contends that the Commission should be bound by the same statute of limitations: one year with a three-year period of repose.

The plain language of Lampf suggests otherwise. At the outset of its opinion, the Court stressed that the only issue before it was "which statute of limitations is applicable to a private suit brought pursuant to" section 10(b) and Rule 10b-5. Id. at ----, 111 S.Ct. at 2776 (emphasis added). The opinion derived a statute of limitations for private rights of action under section 10(b) from the other private rights of action contained in the securities laws. At no point did the Court discuss civil enforcement actions brought by the Commission. More importantly, there is no "awkwardness" here: the Commission's enforcement powers are a product of congressional design and not judicial imagination. Unlike a private litigant, the Commission does not sue under section 10(b). Rather, the Commission has express authority to enforce section 10(b) and the other provisions of the 1934 Act pursuant to section 21 of that Act. See 15 U.S.C. § 78u. There is no reason to assume that an opinion discussing private claims under section 10(b) covers public enforcement suits brought under an entirely different section of the 1934 Act.

Nor does the reasoning of Lampf support Rind's argument. In Lampf, the Court determined that the choices Congress made in limiting the express private actions in the securities laws provided a close approximation of how Congress would have balanced the policy considerations implicit in selecting a statute of limitations for private litigation under section 10(b). See --- U.S. at ---- - ----, 111 S.Ct. at 2780-81. These private limitations periods, however, do not adequately reflect the different interests at stake where the Commission seeks to enforce the securities laws. Although private claims play an undeniably important role in the enforcement of the securities laws, they are brought for entirely...