568 U.S. 442 (2013), 11-1274, Gabelli v. Securities and Exchange Commission

Docket Nº:11-1274
Citation:568 U.S. 442, 133 S.Ct. 1216, 185 L.Ed.2d 297, 81 U.S.L.W. 4142, 24 Fla.L.Weekly Fed. S 78
Opinion Judge:Roberts, Chief Justice.
Party Name:MARC J. GABELLI AND BRUCE ALPERT, Petitioners v. SECURITIES AND EXCHANGE COMMISSION
Attorney:Lewis J. Liman argued the cause for petitioners. Jeffrey B. Wall argued the cause for respondent.
Judge Panel:Roberts, C. J., delivered the opinion for a unanimous Court.
Case Date:February 27, 2013
Court:United States Supreme Court
SUMMARY

The Investment Advisers Act makes it illegal to defraud clients, 15 U.S.C. 10b–6(1),(2), and authorizes the Securities and Exchange Commission to bring enforcement actions against investment advisers and against individuals who aid and abet violations. If the SEC seeks civil penalties, it must file suit “within five years from the date when the claim first accrued,” 28 U. S. C. 2462. In 2008 the... (see full summary)

 
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568 U.S. 442 (2013)

133 S.Ct. 1216, 185 L.Ed.2d 297, 81 U.S.L.W. 4142, 24 Fla.L.Weekly Fed. S 78

MARC J. GABELLI AND BRUCE ALPERT, Petitioners

v.

SECURITIES AND EXCHANGE COMMISSION

No. 11-1274

United States Supreme Court

February 27, 2013

Argued January 8, 2013.

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

SEC v. Gabelli, 653 F.3d 49 (2d Cir. N.Y., 2011)

SYLLABUS

[133 S.Ct. 1217] The Investment Advisers Act makes it illegal for investment advisers to defraud their clients, 15 U.S.C. § § 80b-6(1), (2), and authorizes the Securities and Exchange Commission to bring enforcement actions against investment advisers who violate the Act, or against individuals who aid and abet such violations, § 80b-9(d). If the SEC seeks civil penalties as part of those actions, it must file suit " within five years from the date when the claim first accrued," pursuant to a general statute of limitations that governs many penalty provisions throughout the U.S. Code, 28 U.S.C. § 2462.

In 2008, the SEC sought civil penalties from petitioners Alpert and Gabelli. The complaint alleged that they aided and abetted investment adviser fraud from 1999 until 2002. Petitioners moved to dismiss, arguing in part that the civil penalty claim was untimely. Invoking the five-year statute of limitations in § 2462, they pointed out that the complaint alleged illegal activity up until August 2002 but was not filed until April 2008. The District Court agreed and dismissed the civil penalty claim as time barred. The Second Circuit reversed, accepting the SEC's argument that because the underlying violations sounded in [185 L.Ed.2d 300] fraud, the " discovery rule" applied, meaning that the statute of limitations did not begin to run until the SEC discovered or reasonably could have discovered the fraud.

Held: The five-year clock in § 2462 begins to tick when the fraud occurs, not when it is discovered. Pp. 447-454, 185 L.Ed.2d, at 303-307.

(a) This is the most natural reading of the statute. " In common parlance a right accrues when it comes into existence." United States v.

Lindsay, 346 U.S. 568, 569, 74 S.Ct. 287, 98 L.Ed. 300. The " standard rule" is that a claim accrues " when the plaintiff has ' " a complete and present cause of action." ' " Wallace

v. Kato, 549 U.S. 384, 388, 127 S.Ct. 1091, 166 L.Ed.2d 973. Such an understanding appears in cases and dictionaries from the 19th century, when the predecessor to § 2462 was enacted. And this reading sets a fixed date when exposure to the specified Government enforcement efforts ends, advancing " the basic policies of all limitations provisions: repose, elimination of stale claims, and certainty about a plaintiff's opportunity for recovery and a

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defendant's potential liabilities." Rotella

v. Wood, 528 U.S. 549, 555, 120 S.Ct. 1075, 145 L.Ed.2d 1047. Pp. 447-449, 185 L.Ed.2d, at 303-304.

(b) The Government nonetheless argues that the discovery rule should apply here. That doctrine is an " exception" to the standard rule, and delays accrual " until a plaintiff has 'discovered' " his cause of action. Merck & Co. v. Reynolds, 559 U.S. 633, 644, 130 S.Ct. 1784, 176 L.Ed.2d 582. It arose from the recognition that " something different was needed in the case of fraud, where a defendant's deceptive conduct may prevent a plaintiff from even knowing that he or she has been defrauded." Ibid. Thus " where a plaintiff has been injured by fraud and 'remains in ignorance of it without any fault or want of diligence or care on his part, the bar of the statute does not begin to run until the fraud is discovered.' " Holmberg v. Armbrecht, 327 U.S. 392, 397, 66 S.Ct. 582, 90 L.Ed. 743. This Court, however, has never applied the discovery rule in this context, where the plaintiff is not a defrauded victim seeking recompense, but is instead the Government bringing an enforcement action for civil [133 S.Ct. 1218] penalties. The Government's case is not saved by Exploration Co. v.

United States, 247 U.S. 435, 38 S.Ct. 571, 62 L.Ed. 1200. There, the discovery rule was applied in favor of the Government, but the Government was itself a victim; it had been defrauded and was suing to recover its loss. It was not bringing an enforcement action for penalties.

There are good reasons why the fraud discovery rule has not been extended to Government civil penalty enforcement actions. The discovery rule exists in part to preserve the claims of parties who have no reason to suspect fraud. The Government is a different kind of plaintiff. The SEC's very purpose, for example, is to root out fraud, and it has many legal tools at hand to aid in that pursuit. The Government in these types of cases also seeks a different type of relief. The discovery rule helps to ensure that the injured receive recompense, but civil penalties go beyond compensation, are intended to punish, and label defendants wrongdoers. Emphasizing the importance of time limits on penalty actions, Chief Justice Marshall admonished that it " would be utterly repugnant to the genius of our [185 L.Ed.2d 301] laws" if actions for penalties could " be brought at any distance of time." Adams v.

Woods, 6 U.S. 336, 2 Cranch 336, 342, 2 L.Ed. 297. Yet grafting the discovery rule onto § 2462 would raise similar concerns. It would leave defendants exposed to Government enforcement action not only for five years after their misdeeds, but for an additional uncertain period into the future. And repose would hinge on speculation about what the Government knew, when it knew it, and when it should have known it. Deciding when the Government knew or reasonably should have known of a fraud would also present particular challenges for the courts, such as determining who the relevant actor is in assessing Government knowledge, whether and how to consider

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agency priorities and resource constraints in deciding when the Government reasonably should have known of a fraud, and so on. Applying a discovery rule to Government penalty actions is far more challenging than applying the rule to suits by defrauded victims, and the Court declines to do so. Pp. 449-454, 185 L.Ed.2d, at 304.

653 F.3d 49, reversed and remanded.

Lewis J. Liman argued the cause for petitioners.

Jeffrey B. Wall argued the cause for respondent.

Roberts, C. J., delivered the opinion for a unanimous Court.

OPINION

Roberts, Chief Justice.

The Investment Advisers Act makes it illegal for investment advisers to defraud [133 S.Ct. 1219] their clients, and authorizes the Securities and Exchange Commission to seek civil penalties from advisers who do so. Under the general statute of limitations for civil penalty actions, the SEC has five years to seek such penalties. The question is whether the five-year

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clock begins to tick when the fraud is complete or when the fraud is discovered.

I

A

Under the Investment Advisers Act of 1940, it is unlawful for an investment adviser " to employ any device, scheme, or artifice to defraud any client or prospective client" or " to engage in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client."...

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