Lieberman v. Cambridge Partners, L.L.C.
| Decision Date | 27 December 2005 |
| Docket Number | No. 04-3869.,No. 04-3079.,04-3079.,04-3869. |
| Citation | 432 F.3d 482 |
| Parties | Irvin S. LIEBERMAN, and all others similarly situated, Appellant v. CAMBRIDGE PARTNERS, L.L.C.; J.B. Hanauer & Co. L-3 Communications Corp. Appellant v. Wayne Clevenger, Larry Colangelo, John Fleury, Edward Gorman, Midmark Capital, L.P., Midmark Associates, Inc., Milan Resanovich, Joseph Robinson and Paul Tischler. |
| Court | U.S. Court of Appeals — Third Circuit |
John F. Innelli, (Argued), Innelli Robertson, Philadelphia, PA, for Appellant Irvin S. Lieberman, and all others similarly situated.
Matthew J. Siembieda, (Argued), Carl M. Buchholz, Timothy D. Katsiff, Evan H. Lechtman, Blank Rome LLP, Philadelphia, PA, Mark D. Simon, L-3 Communications Corp., Camden, NJ, for Appellant L-3 Communications Corp.
Lawrence M. Rolnick, Thomas E. Redburn, Jr., (Argued), Lowenstein Sandler, PC, Roseland, NJ, Robert N. Feltoon, Jacquelyn J. Ager, Conrad O'Brien Gellman & Rohn, Philadelphia, PA, for Appellee J.B. Hanauer & Co. Alexander Kerr, (Argued), Gregory J. Hindy, McCarter & English, LLP, Philadelphia, PA, for Appellees Wayne Clevenger, Larry Colangelo, Joseph Robinson, Midmark Capital, LP, and Midmark Associates, Inc.
John F. Smith, III, Charles L. Becker, Reed Smith LLP, Philadelphia, PA, Mark D. Powers, Matthew H. Charity, Baker & Hostetler LLP, New York, NY, for Appellees John Fleury, Edward Gorman and Paul Tischler.
Lewis D. Prutzman, Ralph A. Siciliano, Tannebaum Helpern Syracuse & Hirschtritt LLP, New York, NY, for Appellee Milan Resanovich.
Before RENDELL, FUENTES, and GARTH, Circuit Judges.
In these two cases, which have been consolidated on appeal, plaintiff-appellants Irvin S. Lieberman ("Lieberman")1 and L-3 Communications Corp. ("L-3") instituted federal securities fraud actions after the enactment of Section 804 of the Public Company Accounting Reform and Investor Protection Act of 2002 ("Sarbanes-Oxley").2 That provision extended the applicable limitations period for private securities fraud claims from the earlier of one year after discovery of the wrongdoing or three years after the unlawful transaction3 to the earlier of two years after discovery or five years after the unlawful transaction. See § 804(a).
Section 804 of Sarbanes-Oxley applies to all proceedings "commenced on or after" its enactment date, or July 30, 2002. § 804(b). Were Section 804 applicable here, as Lieberman and L-3 contend, the two actions would be timely, as they were filed within the 2-and-5-year limitations structure. Both actions, however, had earlier been time-barred under the then-applicable 1-and-3-year limitations scheme, inasmuch as the alleged wrongdoing in each case occurred approximately four years before the enactment of Section 804. Put simply, while the actions were filed after the enactment of Section 804, they were already extinguished by then.
At issue in these cases is whether the amended limitations period of Sarbanes-Oxley revives previously expired securities fraud claims. We hold that it does not, and in doing so, join the other courts of appeals that have addressed this same question. See In re Enterprise Mortg. Acceptance Co., LLC Sec. Litig., 391 F.3d 401, 406 (2d Cir.2005) (); Foss v. Bear, Stearns & Co., Inc., 394 F.3d 540, 542 (7th Cir.2005) (same); In re ADC Telecomm., Inc. Sec. Litig., 409 F.3d 974, 978 (8th Cir.2005) (same). Accordingly, we will affirm the District Courts' respective orders dismissing the actions.
The facts relevant to the disposition of these appeals — i.e., those pertaining to the timing of events — are not contested. We recount them below.
On or about April 14, 2003, Irvin S. Lieberman filed a putative securities fraud class action against J.B. Hanauer & Company ("Hanauer") in the United States District Court for the Eastern District of Pennsylvania.4 In effect, Lieberman alleged that Hanauer, as underwriter of certain debt securities issued in a public offering on April 21, 1998, induced investors to purchase the securities by misrepresentation, deceit and fraud, in contravention of the federal securities law. Lieberman claimed that the investors became aware of the alleged misrepresentations only in March 2003.
The complaint was subsequently amended, and thereafter, Hanauer moved to dismiss the amended complaint for failure to state a claim under Fed.R.Civ.P. 12(b)(6). Hanauer argued, inter alia, that all of Lieberman's claims were time-barred as of April 21, 2001, three years after the date of purchase (April 21, 1998). Lieberman argued that his claims, filed within five years of the date of purchase, were timely under the extended limitations period of Sarbanes-Oxley. He argued that the amended limitations scheme was applicable because he instituted the action on April 13, 2003, and hence after Sarbanes-Oxley's effective date of July 30, 2002.
The District Court granted Hanauer's motion and dismissed the amended class action complaint in its entirety, declining to apply Sarbanes-Oxley to revive Lieberman's expired claims.5 Lieberman appealed.
On July 1, 2003, L-3 Communications Corp., a leading merchant supplier of secure communications technology and other similar products, filed a securities fraud action in the United States District Court for the Eastern District of Pennsylvania, naming as defendants various officers and shareholders of SPD Technologies, Inc. ("SPD Technologies") and a wholly-owned subsidiary, SPD Electrical Systems, Inc. ("SPD Electrical"). SPD Electrical is a manufacturer of circuit breakers and switchgear for the United States Navy's nuclear submarines and surface ships.
As relevant here, the complaint, advancing claims under both federal and state law, alleged that on August 13, 1998, L-3 entered into a merger agreement with SPD Technologies and Midmark Capital, L.P., a majority shareholder of SPD Technologies, whereby L-3 purchased all outstanding shares of SPD Technologies. The complaint further alleged that the defendants engaged in a deceptive scheme designed to (1) induce L-3 to pay an artificially high purchase price for the company through material misrepresentations and (2) conceal the fraudulent scheme. L-3 claims not to have discovered this scheme until January 2002. The defendants moved to dismiss the complaint, arguing, inter alia, that the federal securities fraud claims were time-barred after August 13, 2001, three years from the date of the merger (August 13, 1998).
In a thorough and closely-reasoned opinion, Judge Brody granted the defendants' motion and held that Sarbanes-Oxley, contrary to L-3's contentions, did not overcome the strong presumption against revival of time-barred claims, especially where those claims had been extinguished by a statute of repose. Under the then-applicable 1-and-3-year limitations scheme, Judge Brody concluded, L-3's claims had expired on August 13, 2001, three years after the date of the merger and nearly one year before the enactment of Sarbanes-Oxley. Judge Brody declined to exercise supplemental jurisdiction over the remaining state claims.6 This appeal followed.
Lieberman and L-3 now ask us to reverse the decisions below, which held that the extended limitations period of Sarbanes-Oxley did not apply to revive their expired federal securities fraud claims. Because both cases involve the identical legal issue, the parties submitted a Joint Motion for Consolidation for Purposes of Disposition. The Court granted that motion on November 5, 2004.7
We have jurisdiction over the District Courts' final orders dismissing the respective actions pursuant to 28 U.S.C. § 1291. Our review is plenary. See Ballay v. Legg Mason Wood Walker, Inc., 925 F.2d 682, 684 (3d Cir.1991) ().
Prior to the enactment of Sarbanes-Oxley, 28 U.S.C. § 1658(b), there was no congressionally created limitations period for federal securities fraud claims arising under section 10(b) of the Exchange Act. As a result, in Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 111 S.Ct. 2773, 115 L.Ed.2d 321 (1991), the Supreme Court held that litigation instituted pursuant to section 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, as statutorily prescribed for express causes of actions contained in the Exchange Act and the Securities Act. Id. at 362, 111 S.Ct. 2773. The Lampf Court viewed the 3-year limit as a "period of repose," intended to impose an "outside limit" not subject to tolling principles. Id. at 363, 111 S.Ct. 2773 (citation omitted). As the Supreme Court stated:
The 1-year period, by its terms, begins after discovery of the facts constituting the violation, making tolling unnecessary. The 3-year limit is a period of repose inconsistent with tolling... Because the purpose of the 3-year limitation is clearly to serve as a cutoff, we hold that tolling principles do not apply to that period.
As part of Sarbanes-Oxley, enacted on July 30, 2002, Congress amended the 1-and-3-year limitations scheme for private securities fraud actions, previously established by the Supreme Court in Lampf. Section 804 of Sarbanes-Oxley provides:
(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)...
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